Should stephanie accept the offer from the outside supplier

Assignment Help Financial Accounting

Reference no: EM131288246

The Stephanie Company uses 5,000 units of part 666 each year. The full manufacturing cost of one unit of part 666 at this volume is:

Direct materials $ 5.00

Direct labor 7.50

Variable manufacturing overhead 3.00

Average fixed manufacturing overhead 2.00

Total $17.50

An outside supplier has offered to sell Stephanie unlimited quantities of part 666 at a unit cost of $17.00. If Stephanie accepts this offer, it can eliminate 60 percent of the fixed costs assigned to part 666. Furthermore, the space devoted to the manufacture of part 666 can be rented to another company for $10,000 per year.

a. Determine in dollars, the increase or decrease of annual profits from Stephanie accepting the offer of the outside supplier.

b. Should Stephanie accept the offer from the outside supplier? What potential issues does Stephanie have to consider?

c. What are the two potential problems frequently encountered in relevant-cost analysis? How do they relate to Stephanie’s decision?

Reference no: EM131288246

Questions Cloud

Training return on investment : Training return on investment (ROI) is a calculation of economic return on a project. Refer to the lecture for the formula. Review this problem.

What methods can be used to compute a transfer price : What methods can be used to compute a transfer price (for transactions between affiliated companies)?- Why is it often difficult to compute fair arm's-length transfer prices?

Significant events relating to the grant : Grants are not necessarily recognized as revenue when they are awarded. Columbus City was awarded a state reimbursement grant of $150,000 to assist its adult literacy program. The following were significant events relating to the grant: a. The city, ..

Conduct a review of the governance of your organisation : Conduct a review of the governance of your organisation (or one with which you are familiar) and write a report with your findings. Use the concepts, tools and techniques learned in this subject to review the structure, process and effectiveness o..

Should stephanie accept the offer from the outside supplier : The Stephanie Company uses 5,000 units of part 666 each year. The full manufacturing cost of one unit of part 666 at this volume is: Determine in dollars, the increase or decrease of annual profits from Stephanie accepting the offer of the outside su..

Discuss current distribution trends in world markets : Discuss current distribution trends in world markets.- What are the factors that affect the length, width and number of marketing channels?

Ways of displaying a project network : What are two ways of displaying a project network? Briefly describe each one.

How does it affect the way employees behave : What is the organizational culture of Southwest like?How does it affect the way employees behave?What are some potential sources of intrinsic motivation for Southwest employees?

What is the discount on the bonds payable : On July 1, 2014 Botwin Company issues $1,000,000, 10%, bonds payable due in 10 years. If the market rate of interest is 12%, what is the issue price of the bonds payable? If the market rate of interest is 12%, what is the discount on the bonds payabl..

User Account

All Pages