Rubble Company must decide whether to make or buy some of its components. The costs of producing 66,000 switches for its generators are as follows.
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Direct materials
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$30,830
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Variable overhead
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$45,150
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Direct labor
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$37,140
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Fixed overhead
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$79,600
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Instead of making the switches at an average cost of $2.92 ($192,720 ÷ 66,000), the company has an opportunity to buy the switches at $2.68 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.