InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred the following manufacturing costs when it produced 72,000 units last year: LOADING (Click the icon to view the manufacturing costs.) Another company has offered to sell InteliSystems the switch for $8.50 per unit. If InteliSystems buys the switch from the outside supplier, none of the fixed costs are avoidable. The company prepared an outsourcing decision analysis to show the cost per unit of making the switches versus the cost per unit of buying (outsourcing) the switches.

InteliSystems needs 83,000 optical switches next year (assume same relevant range). By outsourcing them, InteliSystems can use its idle facilities to manufacture another product that will contribute $110,000to operating income, but none of the fixed costs will be avoidable. Should InteliSystems make or buy the switches? Show your analysis.

\begin{tabular}{l|l|r|} & \multicolumn{1}{|c|}{ A } & \multicolumn{1}{|c|}{ B } \\ \hline 1 & Direct materials & $576,000 \\ \hline 2 & Direct labor & 108,000 \\ \hline 3 & Variable MOH & 144,000 \\ \hline 4 & Fixed MOH & 504,000 \\ \hline 5 & Total manufacturing cost for 72,000 units & $1,332,000 \\ \hline \end{tabular} InteliSystems Incremental Analysis for Outsourcing Decision