Eyescape Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Eyescape Systems the switch for $14.50 per unit. None of Eyescape​'s fixed costs are avoidable. 1​(Click the icon to view

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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Eyescape
Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell
Eyescape
Systems the switch for
$14.50
per unit. None of
Eyescape​'s
fixed costs are avoidable.
1​(Click
the icon to view the outsourcing​ decision.)
Eyescape
Systems needs
78,000
optical switches. By outsourcing​ them,
Eyescape
Systems can use its idle facilities to manufacture another product that will contribute
$224,000
to operating income.
 
Read the
requirements2.
 
Requirement 1. Identify the expected net costs that
Eyescape
Systems will incur to acquire
78,000
switches under three alternative plans.
 
 
 
Outsource switches
   
Facilities
Make new
Switch costs
Make
Idle
product
Variable costs:
 
 
 
Direct materials
 
 
 
Direct labor
 
 
 
Variable manufacturing overhead
 
 
 
Purchase cost
 
 
 
Expected profit contribution from the other product
 
 
 
Total expected net cost of the optical switches
 
 
 
Requirement 2. Which plan makes the best use of
Eyescape
​System's facilities? Support your answer.
 
Eyescape
Systems should
(1) 
 
 
because this plan results in the lowest
(2) 
 
 
.
 
​However,
Eyescape
Systems should also consider qualitative factors such as
(3) 
 
 
(4) 
 
 
and
(5) 
 
 
.
1: Data Table
 
Make
Outsource
Difference
 
optical switch
optical switch
(Make—Outsource)
Variable costs:
     
Direct materials
$7.00
 
$7.00
Direct labor
3.50
 
3.50
Variable overhead
2.00
 
2.00
Purchase price from outsider
 
$14.50
(14.50)
Differential cost per unit
$12.50
$14.50
$(2.00)
2: Requirements
1.
Identify the expected net costs that
Eyescape
Systems will incur to acquire
78,000
switches under three alternative​ plans: make the​ switches, buy the switches and leave facilities​ idle, buy the switches and use the idle facilities to make another product.
2.
Which plan makes the best use of
Eyescape
​System's facilities? Support your answer.
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