Sunday, September 11, 2011

Should Stephans make or buy the subassemblies? What is the difference between the two alternatives?

ACCOUNTING

Multiple Choice

Stephans Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:



Direct materials $ 1.00

Direct labor 10.00

Variable overhead 5.00

Fixed overhead 8.00

Total $24.00



Bill Company has contacted Stephans with an offer to sell them 5,000 of the subassemblies for $22.00 each. Stephans will eliminate $25,000 of fixed overhead if it accepts the proposal.



Should Stephans make or buy the subassemblies? What is the difference between the two alternatives?

a. Buy; savings = $20,000

b. Buy; savings = $50,000

c. Make; savings = $60,000

d. Make; savings = $5,000


Click here for the SOLUTION

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