Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:

LOADING...

irect materials

$10.00

Direct labor

1.00

Variable overhead

4.00

Fixed overhead

7.50

Manufacturing product cost

$22.50

(Click the icon to view the costs.)

LOADING. Another company has offered to sell

Fiber

Systems the switch for

$17.00

per unit. If

Fiber

Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.

..

(Click the icon to view additional information.)Prepare an outsourcing analysis to determine whether

Fiber

Systems should make or buy the switch. (For the Difference column, use a minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the switches in-house.)

	Make	Outsource	Difference
	optical switch	optical switch	(MakeOutsource)
Variable costs:
Direct materials
Direct labor
Variable overhead
Purchase price from outsider
Total differential cost per unit