Question

BestSystems manufactures an optical switch that it uses in its final product. s incurred the BestSystems does not yet know how many switches it will need this year; however, another company has offered to sell BestSystems the switch for $12.00 per unit. If BestSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used for any other purpose, yet none of the fixed costs are avoidable following manufacturing costs when it produced 73,000 units last year EEE (Click the icon to view the manufacturing costs.) Read the requirements. Requirement 1. Given the same cost structure, should BestSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether BestSystems should make or buy the switch. (Enter a "o" for any zero amounts. Round amounts to the nearest cent. Use a minus sign or parentheses when the cost to buy exceeds the cost to make.) Data Table Incremental Analysis for Outsourcing Decision Make Buy Direct materials Direct labor Variable MOH Fixed MOH Total manufacturing cost for 73,000 units $ 730,000 73,000 219,000 11,000 $ 1.533,000 Unit Unit Variable cost per unit: Direct labor Direct materials Fixed overhead Purchase price from outsider Sales price Variable overhead Print Done in the input fields and then click Check Answer.

Answer 1

	Best Systems
Incremental Analysis for Outsourcing Decision
	Make Unit		Buy Unit	Difference
Variable Cost per unit
Direct Material	10	Purchase Cost	12
	(730000/73000)
Direct Labor	1
	(73000/73000)
Variable overhead	3
	(219000/73000)
Total	14	Total	12	2

1)
Given the same cost structure Best Systems should buy the switch as it would result in a cost saving of
$2 per unit
2)
Statement of Incremental Analysis
Additional Sales (Units)		5000
Saving in Buying		156000
		(78000*2)
Saving in Fixed Cost		95000
	Total Saving in Buying	251000
3)
Buying Cost	-936000
Saving in Buying	156000
Saving in Fixed cost	95000
Net cost on Buying	-685000
Cost per unit	8.782051282
(685000/78000)