Managerial Accounting: E25-18 Eclipse Systems manufactures an optical switch
Managerial Accounting E25-18 Making outsourcing decisions Eclipse Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit: Direct Materials 11.00 Direct Labor 4.50 Variable Overhead 6.00 Fixed Overhead 8.00 Manufacturing Product Cost $29.50
Another company has offered to sell Eclipse Systems the switch for $20.00 per unit. If the Eclipse 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 Eclipse Systems should make or buy the switch.