Question

Can you please explain how I can do this problem please

Intel Systems manufactures an optical switch that it uses in its final product. Intel Systems incurred the following manufacturing costs when it produced 71.000 units last year: (Click the icon to view the manufacturing costs.) Another company has offered to sell Intel Systems the switch for $16.00 per unit. If Intel Systems buys the switch from the outside supplier, none of the fixed costs are avoidable. The company prepared an outsourcing decision analysis for show the cost per unit of making the switches versus the cost per unit of buying outsourcing) the switches (Click the icon to view the outsourcing decision analysis.) InteliSystems needs 79,000 optical switches next year (assume same relevant range). By outsourcing them, Intel Systems can use its idle facilities to manufacture another product that will contribute $150,000 to operating income, but none of the fixed costs will be avoidable. Should Intel Systems make or buy the switches? Show your analysis. i Data Table Complete the Best Use of Facilities Analysis. (Enter a "0" for any zero amounts.) InteliSystems Best Use of Facilities Analysis Direct materials Direct labor Variable MOH Buy and Use Facilities for Other Product 639,000 177.500 142.000 461,500 Fixed MOH Make 1,420.000 Total manufacturing cost for 71.000 units Total variable cost of obtaining the optical switches i Data Table Expected net cost of obtaining the optical switches Difference Intel Systems Incremental Analysis for Outsourcing Decision Make Buy Unit Unit Variable cost per unit: Direct materials 9.00 $ 0.00 $ Direct labor 2.50 0.00 Variable overhead 2.00 0.00 Purchase price from outsider 0.00 16.00 13.50 $ Variable cost per unit 16.00 $ 9.00 2.50 2.00 (16.00) Choose from any list or enter any number in the input fields and then click Check Answer 1 part (2.50) 1 remaining k Answer

Answer 1

	Make	Buy
Variable cost per unit	$                13.50	$             16.00
Units required	$             79,000	$           79,000
Total Variable cost of obtaining optical switches	$       1,066,500	$     1,264,000
Contribution to income by using idle facilities	$                       -	$         150,000
Expected net cost of obtaining optical switches	$       1,066,500	$     1,114,000

Contribution to income by using idle facilities will be reduced from buying cost to arrive at net cost.