Relevant costs in the make-or-buy decision Premier Company manufactures LO 2 gear model G37 used in several of its farm-equipment products. Annual produc¬ tion volume of C37 is 20,000 units. Unit costs for G37 are as follows:

Alternatively, Premier can also purchase gear model G37 from an outside supplier for $120 per unit. If G37 is outsourced, Premier can use the facility where G37 is currently manufactured for production of another gear—model G49. This would save Premier $113,000 in facility rental and other costs presently incurred. Should Premier make or buy G37?

Transcribed Image Text:

Direct materials costs $ 55 Direct labor costs 30 Variable support costs 25 Fixed support costs 15 Total costs $125