Question

BestSystems manufactures an optical switch that it uses in its final product. BestSystems incurred the following manufacturing costs when it produced 72,000 units last​ year:

Direct materials	$648,000
Direct labor	72,000
Variable MOH	144,000
Fixed MOH	396,000
Total manufacturing cost for 72,000 units	$1,260,000

BestSystems does not yet know how many switches it will need this​ year; however, another company has offered to sell BestSystems the switch for $15.50 per unit. If BestSystems 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.

1.	Given the same cost​ structure, should BestSystems make or buy the​ switch? Show your analysis.
2.	​Now, assume that BestSystems can avoid $108,000 of fixed costs a year by outsourcing production. In​ addition, because sales are​ increasing, BestSystems needs 77,000 switches a year rather than 72,000 switches. What should the company do​ now?
3.	Given the last​ scenario, what is the most BestSystems would be willing to pay to outsource the​ switches?

1) Given the same cost​ structure, should BestSystems make or buy the​ switch? Show your analysis. Complete an incremental analysis to show whether BestSystems 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.)

	Make Unit	Buy Unit	Difference
Variable cost per unit:
Total variable cost per unit

Answer 1