1. List the relevant costs of the make and buy alternatives in the table below.
	Alternatives			Differential Cost to Make
	Make	Buy
Direct materials
Direct labor
Variable overhead
Purchase cost
Total relevant cost

2. If Zion decides to buy the component from Bryce, will operating income increase or decrease, and by how much?

3. Assume that 75% of Zion Manufacturing's fixed overhead for Component K2 would be eliminated if that component were no longer produced. If Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? Which alternative is better?

4. Briefly explain how DECREASING the 75% of fixed overhead for Component K2 would affect Zion's decision to make or buy the component.

Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $25 each. Zion uses 10,000 units of Component K2 each year. The cost per unit of this component is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total $12.00 8.25 4.50 2.00 $26.75