Sensor Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit: LOADING... (Click the icon to view the costs.) Direct materials $7.00 Direct labor 2.00 Variable overhead 8.00 Fixed overhead 6.50 Manufacturing product cost $23.50 _______ LOADING... (Click the icon to view additional information.) Another company has offered to sell Sensor Systems the switch for $19.00 per unit. If Sensor 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. Prepare an outsourcing analysis to determine whether Sensor Systems should make or buy the switch. (For the Difference column, use a minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the switches in-house.) Make Outsource Difference optical switch optical switch (Make—Outsource) Variable costs: Direct materials Direct labor Variable overhead Purchase price from outsider Total differential cost per unit Decision: ▼ buy the optical switch make the optical switch

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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Sensor

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

(Click

the icon to view the costs.)

Direct materials

$7.00

Direct labor

2.00

Variable overhead

8.00

Fixed overhead

6.50____________________________

Manufacturing product cost

$23.50__________________________

_________________________________

(Click

the icon to view additional information.)

Another company has offered to sell Sensor Systems the switch for $19.00 per unit. If Sensor 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.

Prepare an outsourcing analysis to determine whether Sensor Systems should make or buy the switch. (For the Difference column, use a minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the switches in-house.)

	Make	Outsource	Difference
	optical switch	optical switch	(Make—Outsource)
Variable costs:
Direct materials
Direct labor
Variable overhead
Purchase price from outsider
Total differential cost per unit

Decision:

▼

buy the optical switch

make the optical switch

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