Exercise 13-24 Make-or-Buy Decision

Refer to the information for Zion Manufacturing above. 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.List the relevant costs for each alternative. If Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease?

3.CONCEPTUAL CONNECTION Which alternative is better?