Soft Pearl Company incurs the following costs to produce 50000 light switches for floor lamps in 2020.

The Ignition Company has offered to supply the switches for $8 per unit. An analysis of the overhead costs has identified that, if the switches are outsourced, Soft Pearl Company would eliminate $40000 of fixed costs and could use the released production capacity to generate additional income of $112000 from producing a different product.

Required
(a) From a financial perspective, should the light switches be outsourced? Show calculations.
(b) What qualitative factors need to be considered in the outsourcing decision?

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Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing costs $200 000 300 000 160 000 240 000 $ 900 000