Refer to E8-39B. World Systems needs 80,000 optical switches next year (assume same relevant range). By outsourcing them, World Systems 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 World Systems make or buy the switches? Show your analysis.
In Exercise 39
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . $ 726,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,000
Variable overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . . . . . 132,000
Fixed overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . . 363,000
Total manufacturing cost for 66,000 units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $1,320,000