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 $12 each. Zion uses 4,900 units of Component K2 each year. The cost per unit of this component is as follows:
Direct materials $7.54
Direct labor 2.64
Variable overhead 1.11
Fixed overhead 3.00
Total $14.29
The fixed overhead is an allocated expense; none of it would be eliminated if production of Component K2 stopped.
Required:
a. What are the alternatives facing Zion Manufacturing with respect to production of Component K2?
b. List the relevant costs for each alternative.
b.
Answers: 2
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Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recen...
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