EyescapeSystems manufactures an optical switch that it uses in its final product. Another company has offered to sellEyescapeSystems the switch for$14.50per unit. None ofEyescape'sfixed costs are avoidable.1(Clickthe icon to view the outsourcing decision.)EyescapeSystems needs78,000optical switches. By outsourcing them,EyescapeSystems can use its idle facilities to manufacture another product that will contribute$224,000to operating income. Read therequirements2. Requirement 1. Identify the expected net costs thatEyescapeSystems will incur to acquire78,000switches under three alternative plans. Outsource switches FacilitiesMake newSwitch costsMakeIdleproductVariable costs: Direct materials Direct labor Variable manufacturing overhead Purchase cost Expected profit contribution from the other product Total expected net cost of the optical switches Requirement 2. Which plan makes the best use ofEyescapeSystem's facilities? Support your answer. EyescapeSystems should(1) because this plan results in the lowest(2) . However,EyescapeSystems should also consider qualitative factors such as(3) (4) and(5) .1: Data Table MakeOutsourceDifference optical switchoptical switch(Make—Outsource)Variable costs: Direct materials$7.00 $7.00Direct labor3.50 3.50Variable overhead2.00 2.00Purchase price from outsider $14.50(14.50)Differential cost per unit$12.50$14.50$(2.00)2: Requirements1.Identify the expected net costs thatEyescapeSystems will incur to acquire78,000switches 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 ofEyescapeSystem's facilities? Support your answer.

The switch is available from Eyescape Systems for $14.50 per unit. 78,000 optical switches are…

Answered: Eyescape Systems manufactures an…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...

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Question

Eyescape

Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell

Eyescape

Systems the switch for

$14.50

per unit. None of

Eyescape's

fixed costs are avoidable.

1(Click

the icon to view the outsourcing decision.)

Eyescape

Systems needs

78,000

optical switches. By outsourcing them,

Eyescape

Systems can use its idle facilities to manufacture another product that will contribute

$224,000

to operating income.

Read the

requirements2.

Requirement 1. Identify the expected net costs that

Eyescape

Systems will incur to acquire

78,000

switches under three alternative plans.

		Outsource switches
		Facilities	Make new
Switch costs	Make	Idle	product
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
Purchase cost
Expected profit contribution from the other product
Total expected net cost of the optical switches

Requirement 2. Which plan makes the best use of

Eyescape

System's facilities? Support your answer.

Eyescape

Systems should

(1)

because this plan results in the lowest

(2)

However,

Eyescape

Systems should also consider qualitative factors such as

(3)

(4)

and

(5)

1: Data Table

	Make	Outsource	Difference
	optical switch	optical switch	(Make—Outsource)
Variable costs:
Direct materials	$7.00		$7.00
Direct labor	3.50		3.50
Variable overhead	2.00		2.00
Purchase price from outsider		$14.50	(14.50)
Differential cost per unit	$12.50	$14.50	$(2.00)

2: Requirements

1.	Identify the expected net costs that Eyescape Systems will incur to acquire 78,000 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 Eyescape System's facilities? Support your answer.

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