Answer the following questions using the information below:
Stephans Corporation currently manufactures a subassembly for its main product.The costs per unit are as follows:
$$\begin{array} { l r }
\text { Direct materials } & \$ 1.00 \
\text { Direct labour } & 10.00 \
\text { Variable overhead } & 5.00 \
\text { Fixed overhead } & \underline { 8.00 } \
\quad \text { Total } & \underline{\$ 24.00} \

\end{array}$$ Bill Company has contacted Stephans with an offer to sell them 5000 of the subassemblies for $22.00 each.Stephans will eliminate $25 000 of fixed overhead if it accepts the proposal.
-What are the relevant costs for Stephans?
A)$125 000
B)$140 000
C)$105 000
D)$80 000

Question

Answer the following questions using the information below:
Stephans Corporation currently manufactures a subassembly for its main product.The costs per unit are as follows:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 1.00 \
\text { Direct labour } & 10.00 \
\text { Variable overhead } & 5.00 \
\text { Fixed overhead } & \underline { 8.00 } \
\quad \text { Total } &  \underline{\$ 24.00} \

\end{array}$$ Bill Company has contacted Stephans with an offer to sell them 5000 of the subassemblies for $22.00 each.Stephans will eliminate $25 000 of fixed overhead if it accepts the proposal.
-What are the relevant costs for Stephans?
A)$125 000
B)$140 000
C)$105 000
D)$80 000

Quizplus · Accepted Answer

The relevant costs for Stephans are the variable costs per unit, which in this case are $15.00 each (material costs of $5.00 and direct labor of $10.00). The total relevant cost for 5000 subassemblies would be:

$15.00 x 5000 = $75 000

Stephans would also save $25 000 in fixed overhead costs by accepting the offer. Therefore, the total relevant costs are:

$75 000 + $25 000 = $100 000

However, Bill Company is offering to sell the subassemblies for $22.00 each, which means Stephans would have to pay:

$22.00 x 5000 = $110 000

Since the total cost of accepting the offer is higher than the total relevant costs, it would not be the best choice for Stephans. Therefore, the best choice for Stephans is to continue manufacturing the subassemblies themselves.

Answer the Following Questions Using the Information Below: Stephans Corporation

Answer the Following Questions Using the Information Below:
Stephans Corporation