Make-or-Buy Decision 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 $27 each. Zon uses 12,500 units of Component K2 each year. The cost per unit of this component is as follows: Direct materials $12.00 Direct labor 8.25 Variable overhead 4.50 Fixed overhead Total 6.00 $30.75 Assume that 75% of Zion Manufacturing's fixed overhead for Component K2 would be eliminated if that component were no longer produced Required: 1. CONCEPTUAL CONNECTION: If Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? Which alternative is better? Purchase the component from Bryce 2. CONCEPTUAL CONNECTION: Briefly explain how increasing or decreasing the 75% figure affects Zion's final decision to make or purchase the component. even attractiv As the percentage of avoidable fixed cor increases (above 75%), total relevant costs of making the component increase, causing the "purchase" decision to be the "make" option) than it was when stage was 75%. In other words, as the percentage increases, difference between the "purchase" and "make" options increases resulting in the "purchase decision being ely, as the percentage of avoidable fixed costs decreases, the "make" option eventually is costly and financially appealing (compared to as the "purchase" option. Finally, as t financially appealing option ntage of avoidable fixed cost decreases low enough and the total relevant costs of making the component decrease, the l appealing financially option becomes the more