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ill 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
ill 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?
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