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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.

FINANCIAL ACCOUNTING
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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HW 6. Please complete both parts :) 

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: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
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.
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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