Maple Company must decide whether to make or buy some of its components. The costs of producing 60,000 switches for its generators are as follows:

Instead of making the switches at an average cost of $2.95 ($177,000 60,000), the company has an opportunity to buy the switches at $2.75 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs will be eliminated.

Which of the following is correct?