50.1K

Verified Solution

Link Copied!

FiberSystems manufactures an optical switch that it uses in its final product. FiberSystems incurred the following manufacturing costs when it produced 68,000 units last year:

FiberSystems does not yet know how many switches it will need this year; however, another company has offered to sell FiberSystems the switch for $20.00 per unit. If FiberSystems 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.

\begin{tabular}{l|l|r|} & \multicolumn{1}{|c|}{ A } & \multicolumn{1}{|c|}{ B } \\ \hline 1 & Direct materials & $148,000 \\ \hline 2 & Direct labor & 170,000 \\ \hline 3 & Variable MOH & 204,000 \\ \hline 4 & Fixed MOH & 374,000 \\ \hline 5 & Total manufacturing cost for 68,000 units & $1,496,000 \\ \hline \end{tabular} 1. Given the same cost structure, should FiberSystems make or buy the switch? Show your analysis. 2. Now, assume that FiberSystems can avoid $104,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, FiberSystems needs 73,000 switches a year rather than 68,000 switches. What should the company do now? 3. Given the last scenario, what is the most FiberSystems would be willing to pay to outsource the switches

Answer & Explanation Solved by verified expert

See Answer