Gem Products is considering buying the casters it uses in the manufacture of office chairs from an outside vendor. Currently, Gem Products makes the casters in its own manufacturing facility. Gem Products can buy the casters for $1.15 each. The company uses 450,000 casters each year. Information about Gem Products’ cost to manufacture the 450,000 casters follows:

Required: Prepare a relevant cost schedule that indicates whether Gem Products should buy the casters or continue to make them.

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Direct material Direct labor Variable overhead Fixed overhead Total Per Unit $.50 Total $225,000 .10 45,000 .40 180,000 $1.25 112,500 $562,500 Fixed cost for Gem Products would not change if the company stopped making the casters.