Current-Control Inc. manufactures a variety of electrical switches. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a switch to Current-Control for $32 per unit. To evaluate this offer, Current-Control has gathered the following information relating to its own cost of producing the switch internally:

Required:
1. Assuming that the company has no alternative use for the facilities now being used to produce the switch, should the outside supplier€™s offer be accepted? Show all computations.
2. Suppose that if the switches were purchased, Current-Control could use the freed capacity to launch a new product. The segment margin of the new product would be $78,000 per year. Should Current-Control accept the offer to buy the switches from the outside supplier for $32 each? Show computations.

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Per Unit 12,000 Units per Year $ 144,000 120,000 36,000 96,000 192,000 Direct materials... Direct labour.... Variable manufacturing overhead... Fixed manufacturing overhead, traceable.. Fixed manufacturing overhead, common, but allocated. Total cost.... $ 12 10 8* 16 $49 $588,000 *25% supervisory salaries; 75% depreciation of special equipment (no resale value).