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 $ each Zion uses 4,500 units of Component K2 each year. The cost per unit of this component is as follows: Direct materials 57.21 Direct labor 2.52 Variable overhead 1.38 Fixed overhead 4.00 Total $15.11 The fixed overhead is an allocated expense; none of it would be eliminated if production of Component K2 stopped Required: 1. What are the alternatives facing Zion Manufacturing with respect to production of Component K?? 2. List the relevant costs for each alternative. If required, round your answers to the nearest cent. Total Relevant Cost Make per unit Buy per unit Differential Cost to Make per unit If Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? Direct labor 2.52 Variable overhead 1.38 Fixed overhead 4.00 Total $15.11 The fixed overhead is an allocated expense; none of it would be eliminated if production of component K2 stopped. Required: 1. What are the alternatives facing Zion Manufacturing with respect to production of Component K2? 2. Ust the relevant costs for each alternative. If required, round your answers to the nearest cont. Total Relevant cost Make per unit per unit Buy Differential Cost to Make if Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? per unit 3. Conceptual Connection: Which alternative is better? 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 $ each Zion uses 4,500 units of Component K2 each year. The cost per unit of this component is as follows: Direct materials 57.21 Direct labor 2.52 Variable overhead 1.38 Fixed overhead 4.00 Total $15.11 The fixed overhead is an allocated expense; none of it would be eliminated if production of Component K2 stopped Required: 1. What are the alternatives facing Zion Manufacturing with respect to production of Component K?? 2. List the relevant costs for each alternative. If required, round your answers to the nearest cent. Total Relevant Cost Make per unit Buy per unit Differential Cost to Make per unit If Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? Direct labor 2.52 Variable overhead 1.38 Fixed overhead 4.00 Total $15.11 The fixed overhead is an allocated expense; none of it would be eliminated if production of component K2 stopped. Required: 1. What are the alternatives facing Zion Manufacturing with respect to production of Component K2? 2. Ust the relevant costs for each alternative. If required, round your answers to the nearest cont. Total Relevant cost Make per unit per unit Buy Differential Cost to Make if Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? per unit 3. Conceptual Connection: Which alternative is better
