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

	Per Unit	Total
Direct material	$.50	$225,000
Direct labor	.10 .40 .25	45,000
Variable overhead	180,000
Fixed overhead	112,500
Total		$1.25		$562,500

Fixed cost for Ariel Gem Products would not change if the company stopped making the casters.

Required:

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

1. If Ariel purchased the casters, management has approached you to produce Gidgets that will earn a profit of $120,000 per year. Does this change your decision??
2. Give two qualitative factors would influence your decision.