Credight side of c Payments of diectio poyt ajorect labour cost aigned Lobour Salaries due for the use of direct labou labour signed Question 4 (20 points) Maxwell Co. manufactures switches that it uses in several of its products Management considering whether to continue manufacturing the switches or to buy them from an outside source. The following information is available The company needs 100.000 switches per year. Switches can be purchased from an outside supplier at a cost of $6 per unit The cost of manufacturing switches is $5 per unit, computed as follows Direct materials Direct labor Variable Manufacturing overhead Fixed Total manufacturing costs $160.000 110.000 220,000 60.000 $550,000 Cost per unit ($550,000 100,000 units) $5.50 Discontinuing the manufacture of the switches will eliminate all the direct materials and direct labor costs but will eliminate only 80 percent of the variable overhead costs If the switches are purchased from an outside source, certain machinery used in the production process would no longer have to be leased Accordingly. $20,000 of fixed overhead costs could be avoided. No other reduction will result from discontinuing production of the switches Instructions: a. Prepare a schedule to determine the incremental cost or benefit of buying switches from the outside supplier. Based on this schedule, would you recommend that the company manufacture the switches or buy them from the outside source? Total cost of manufacturing the switches S Total cost of buying the switches S (4 points) (4 points) b. Assume that if switches are purchased from the outside source, the factory space previously used to produce switches can be rented to another business for $20,000 per month. Would this new assumption change your recommendation as to whether to make or buy switches? in support of your conclusion, prepare a new schedule showing the incremental cost or benefit of buying switches from the outside source and renting the factory space Total cost of manufacturing the switches $ Total cost of buying the switches S Indicate the opportunity cost 5 (4 points) (4 points) (4 points)