Refer to E8-39B. Tech Systems needs 80,000 optical switches next year (assume same relevant range). By outsourcing them, Tech Systems can use its idle facilities to manufacture another product that will contribute $130,000 to operating income, but none of the fixed costs will be avoidable. Should Tech Systems make or buy the switches? Show your analysis.
In E Tech Systems manufactures an optical switch that it uses in its final product. Tech Systems incurred the following manufacturing costs when it produced 68,000 units last year:
Direct materials.................................................................................. $ 680,000
Direct labour........................................................................................... 136,000
Variable overhead..................................................................................... 68,000
Fixed overhead....................................................................................... 374,000
Manufacturing cost for 68,000 units.................................................. $1,258,000

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Tech Systems Incremental Analysis for Outsourcing Decision Cost to Make Minus Make Unit Buv Unit Cost to Bu Variable cost per unit: Direct materials Direct labour Variable overhead $10.00 2.00 1.00 10.00 2.00 1.00 (11.00) 11.00 Variable cost per unit $13.00 $11.00 $ 2.00