Laser Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Laser Systems the switch for $16.00 per unit. None of Laser's fixed costs are avoidable.

Laser Systems needs 82,000 optical switches. By outsourcing them, Laser Systems can use its idle facilities to manufacture another product that will contribute $221,000 to operating income.

Requirements:

1. Identify the expected net costs that Laser Systems will incur to acquire 82,000 switches under three alternative plans
2. Which plan makes the best use of Laser Systems facilities? Support your answer

Make Outsource Difference optical switch optical switch (make--outsource) Variable costs Direct materials 11.00 11.00 2.50 Direct labor 2.50 5.00 Variable overhead 5.00 16.00 (16.00) Purchase price from outsider 18.50 $ 16.00S 2.50 Differential cost per unit