Use the following information for Exercises 13-24 and 13-25:
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:
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.
- 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?
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