PARTC Fibre Systems Inc. manufactures an optical switch that it uses in its final product. The company incurred the following manufacturing costs when it produced 70,000 optical switches last year: Direct materials $630,000 Direct labour 105,000 Variable overhead 140,000 Fixed overhead 455,000 Total manufacturing costs for 70,000 units $1,330,000 Fiber Systems does not yet know how many switches it will need this year. However, another company has offered to sell Fiber Systems the switch for $14 per unit. Required: 1. Assume that if Fiber Systems buys the switch from the outside supplier, the manufacturing facilities that become idle cannot be used for any other purpose. Also assume that none of the fixed costs are avoidable. Should Fiber Systems buy or continue making the switches? Show your analysis. 2. Now, assume Fiber Systems can avoid $100,000 of fixed costs a year by purchasing outside. In addition because sales are increasing, Fiber Systems needs 75,000 switches a year rather than 70,000. What should Fiber Systems do now? Show your analysis. 3. Given the scenario in #2, what is the highest price Fiber Systems would be willing to pay to purchase the switches from the outside supplier? Show your analysis