Refer to E8-25A. OptiSystems needs 84,000 optical switches next year (assume same relevant range). By outsourcing them, OptiSystems can use its idle facilities to manufacture another product that will contribute $120,000 to operating income, but none of the fixed costs will be avoidable. Should OptiSystems make or buy the switches? Show your analysis.
In Exercise 25
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 720,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 180,000
Variable overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 216,000
Fixed overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 468,000
Total manufacturing cost for 72,000 units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,584,000