Blossom Company must decide whether to make or buy some of its components. The costs of producing 62.600 switches for its generators are as follows.

Direct materials

$29,800

Variable overhead

$45.400

Direct labor

$29.940

Fixed overhead

$76.400

Instead of making the switches at an average cost of $2.90 ($181.540 - 62,600), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.