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, sta price of $27 each. Zion 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 6.00 Total $30.75 Assume that 75% of Zion Manufacturing's fixed overhead for Component K2 would be eliminated that component were no longer produced Required: 1. CONCEPTUAL CONNECTION 1 Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? Increase 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 As the percentage of avoidable fixed cost increases (above 75%), total relevant costs of making the component increase, causing the purchase decision to be financially appealing (compared to the "make" option) than it was when the percentage was 75%. In other words, as the percentage increases, difference more Assume that 75of Zion Manufacturing's fixed overhead for Component K2 would be eliminated it that component were no longer produced Required: 1. CONCEPTUAL CONNECTION: Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? Increase more Which alternative is better? Purchase the component from Bryce 2. CONCEPTUAL CONNECTION: Brleny explain how Increasing or decreasing the 75% figure affects Zion's final decision to make or purchase the competent. As the percentage of avoidable fixed cost increases (above 75%), total relevant costs of making the component increase, causing the purchase" decision to be financially appealing (compared to the "make" option) than it was when the percentage was 75%. In other words, as the percentage increases, afference between the purchase and make options increases resulting in the purchase decision being even more attractive Alternatively, as the percentage of avoidable fixed costs decreases, the make" option eventually is equally costly and equally appealing financially as the purchase" option. Finally as the percentage of avoidable fixed cost decreases low enough and the total relevant costs of making the component decrease, the make" Vstion becomes the more financially appealing option 3. CONCEPTUAL CONNECTION: By how much would the per unit relevant fed cont have to decrease before Zion would be indifferent (e. ineur the same cows between making versus "purchasing the component Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Alanson Boyne Conway Total Sales revenue $1,280 $185 $270 $1,735 Less: Variable expenses 1.115 45 203 1,363 Contribution margin $165 $140 $67 $372 Less direct fixed expenses 15 14 Depreciation SO 79 Salaries 95 85 100 280 Segment margin $20 $40 $(47) $13 Direct fixed expenses consist of depreciation and plant supervisory sales. Al depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that each of the three products has a different supervisor whose position would remain if the associated product were dropped. Required: CONCEPTUAL CONNECTION: Estimate the impact on profit that would result from dropping Conway. Enter amount in full mother than in thousands. For example, "15000 rather than 15 Decrease