exercise 13-24

Project Description:

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.

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 $12.00
direct labor 8.25
variable overhead 4.50
fixed overhead 2.00
total $26.75
1. what are the alternatives facing zion manufacturing with respect to production of compo-
nent 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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Project Stats: Edited

Price Type: Fixed

Project Budget: $0 to $10
Total Proposals: 3
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