Refer to E8-25A. Fibre Systems needs 80,000 optical switches next year (assume same relevant range).
In E Fibre Systems manufactures an optical switch that it uses in its final product. Fibre Systems incurred the following manufacturing costs when it produced 70,000 units last year:
Direct materials.................................................................................. $ 630,000
Direct labour...................................................................................... 105,000
Variable overhead.............................................................................. 140,000
Fixed overhead................................................................................... 455,000
Total manufacturing cost for 70,000 units......................................... $1,330,000
By outsourcing them, Fibre Systems can use its idle facilities to manufacture another product that will contribute $220,000 to operating income, but none of the fixed costs will be avoidable. Should Fibre Systems make or buy the switches? Show your analysis.