Bramble Company must decide whether to make or buy some of its components. The costs of producing 69,800 switches for its generators are as follows. Direct materials $29,700 Variable overhead $45,400 Direct labor $51,806 Fixed overhead $80,400 Instead of making the switches at an average cost of $2.97 ($207,306 : 69,800), 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.
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