InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred t costs when it produced 70,000 units last year: E (Click the icon to view the manufacturing costs.) following manufacturing InteliSystems does not yet know how many switches it will need this year, however, another company has offered to sell InteliSystems the switch for $8.50 per unit. If InteliSystems 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. Read the requirements Requirement 1. Given the same cost structure, should InteliSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether InteliSystems should make or buy the switch. (Enter a "0" 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.) InteliSystems |3 Incremental Analysis for Outsourcing Decision Data table Make Buy Unit Unit Difference B Variable cost per unit: 1 Direct materials 560,000 Direct materials 2 Direct labor 105,000 Direct labor 3 Variable MOH 70,000 Variable overhead 4 Fixed MOH 455,000 Purchase price from outsider 5 Total manufacturing cost for 70,000 units 1,190,000 Total variable cost per unit Print Done
InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred t costs when it produced 70,000 units last year: E (Click the icon to view the manufacturing costs.) following manufacturing InteliSystems does not yet know how many switches it will need this year, however, another company has offered to sell InteliSystems the switch for $8.50 per unit. If InteliSystems 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. Read the requirements Requirement 1. Given the same cost structure, should InteliSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether InteliSystems should make or buy the switch. (Enter a "0" 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.) InteliSystems |3 Incremental Analysis for Outsourcing Decision Data table Make Buy Unit Unit Difference B Variable cost per unit: 1 Direct materials 560,000 Direct materials 2 Direct labor 105,000 Direct labor 3 Variable MOH 70,000 Variable overhead 4 Fixed MOH 455,000 Purchase price from outsider 5 Total manufacturing cost for 70,000 units 1,190,000 Total variable cost per unit Print Done
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:# Incremental Analysis for Outsourcing Decision
### InteliSystems Manufacturing Overview
InteliSystems manufactures an optical switch used in its final product. The company incurred specific manufacturing costs when it produced 70,000 units last year. Although the exact number of switches needed this year is uncertain, an external company has offered to supply the switches at $8.50 per unit. If InteliSystems chooses to purchase from this external supplier, the manufacturing facilities used for production will remain idle and cannot be repurposed. Despite this, fixed costs are unavoidable.
### Requirements
**Requirement 1:**
With the given cost structure, should InteliSystems make or buy the switch? Provide an analysis.
Complete an incremental analysis to determine whether InteliSystems should make or purchase the switch. (Enter "0" 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
#### Cost Breakdown for 70,000 Units
1. **Direct Materials**: $560,000
2. **Direct Labor**: $105,000
3. **Variable Manufacturing Overhead (MOH)**: $70,000
4. **Fixed Manufacturing Overhead (MOH)**: $455,000
**Total Manufacturing Cost for 70,000 Units**: $1,190,000
---
### InteliSystems Incremental Analysis for Outsourcing Decision
| | Make Unit | Buy Unit | Difference |
|-------------------------------------------|-----------|----------|------------|
| **Variable Cost per Unit** | | | |
| Direct Materials | | | |
| Direct Labor | | | |
| Variable Overhead | | | |
| Purchase Price from Outsider | | | |
| **Total Variable Cost per Unit** | | | |
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