Requirements 1. Identify the expected net costs that Cool Systems will incur to acquire 79,000 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 Cool System's facilities? Support your answer.
Requirements 1. Identify the expected net costs that Cool Systems will incur to acquire 79,000 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 Cool System's facilities? Support your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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HW 6. Please complete both parts :)
Transcribed Image Text:Cool Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Cool
Cool Systems needs 79,000 optical switches. By outsourcing them, Cool Systems can use its idle facilities to
manufacture another product that will contribute $225,000 to operating income.
Systems the switch for $15.00 per unit. None of Cool's fixed costs are avoidable.
E (Click the icon to view the outsourcing decision.)
Read the requirements.
Requirement 1. Identify the expected net costs that Cool Systems will incur to acquire 79,000 switches under three alternative plans.
Outsource switches
Facilities
Make new
- X
Data Table
Switch costs
Make
Idle
product
Variable costs:
Direct materials
Make
Outsource
Difference
Direct labor
optical switch optical switch
(Make-Outsource)
Variable manufacturing overhead
Variable costs:
Purchase cost
Direct materials
$
5.00
$
5.00
Expected profit contribution from the other
product
Direct labor
3.00
3.00
Variable overhead
6.00
6.00
Total expected net cost of the optical switches
$
15.00
(15.00)
Purchase price from outsider
$
14.00 $
15.00 $
(1.00)
Differential cost per unit
Transcribed Image Text:Requirements
1. Identify the expected net costs that Cool Systems will incur to acquire 79,000 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 Cool System's facilities? Support your answer.
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