Refer to Exercise E25- 18. Fiber Systems needs 84,000 optical switches. By ­outsourcing them, Fiber Systems can use its idle facilities to manufacture another product that will contribute $ 253,000 to operating income.

E25- 18

Direct Materials........ $ 9.00

Direct Labor ........1.50

Variable Overhead ......5.00

Fixed Overhead........ 9.00

Manufacturing Product Cost ....$ 24.50

Requirements

1. Identify the expected net costs that Fiber Systems will incur to acquire 84,000 switches under three alternative plans.

2. Which plan makes the best use of Fiber System’s facilities? Support your answer.