Wilma Company must decide whether to make or buy some of its components. The costs of producing 63,800 switches for its generators are as follows. Direct materials | | $29,100 | | Variable overhead | | $44,800 | | Direct labor | | $40,462 | | Fixed overhead | | $76,400 | |
Instead of making the switches at an average cost of $2.99 ($190,762 ÷ 63,800), the company has an opportunity to buy the switches at $2.70 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.
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