Answered: Direct materials $ 5.00 Direct labor…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Making outsourcing decisions

Cool Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:

Another company has offered to sell Cool Systems the switch for $15.00 per unit. If Cool Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.</p><p>Prepare an outsourcing analysis to determine whether Cool Systems should make or buy the switch.

Direct materials
$ 5.00
Direct labor
3.00
Variable overhead
6.00
Fixed overhead
7.00
Manufacturing product cost
$ 21.00

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