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 $25 each Zion uses 10,000 units of component K2 each year the cost per unit of this component is as follows;Direct materials $12.00direct labor 8.25variable overhead 4.50fixed overhead 2.00total $26.75refer 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 cost for each alternative if Zion decides to purchased the component from Bryce by how much will operating income increase or decrease.
3-conceptual connection which alternative is better