PROBLEM 21.3B Make or Buy Decision sidering whether to continue manufacturing the switches or to buy them from an outside sourcoe. ames Lighting manufactures switches that it uses in several of its products. Management is con The following information is available: 1. The company needs 100,000 switches per year. Switches can be purchased from an outside supplier at a cost of $4 per unit. 2. The cost of manufacturing switches is $5 per unit, computed as follows: Direct materials Direct labor Manufacturing overhead: $150,000 100,000 200,000 50,000 $500,000 Fixed Total manufacturing costs Cost per unit ($500,000 100,000 units) 3. Discontinuing the manufacture of the switches will eliminate all of the direct materials and direct labor costs but will eliminate only 70 percent of the variable overhead costs. 4. If the switches are purchased from an outside certain machinery used in the pro- duction process would no longer have to be leased. Accordingly, $19,000 of fixed overhead costs could be avoided. No other reduction will result from discontinuing production of the switches