Reference no: EM132810036

Romeo's Products is considering buying the wheels it uses in the manufacture of office chairs from an outside vendor. Currently, Romeo's Products makes the wheels in its own manufacturing facility. Romeo's Products can buy the wheels from an outside supplier for $1.15 each. The company uses 450,000 wheels each year.

Information about Romeo's Products cost to manufacture the 450,000 wheels is as follows:

                                    Per Unit                    Total
Direct Material          $0.50               $225,000
Direct Labor             $0.10                 $45,000
Variable Overhead      $0.40              $180,000
Fixed Overhead         $0.25               $112,500
Total                   $1.25                 $562,500

Fixed cost for Romeo's Products would not change if the company stopped making the wheels.

Required:

Problem 1: Make a relevant cost schedule that indicates whether Romeo's Products should buy the wheels from the outside supplier or continue to make them.