Question 1 a) Zee Manufacturing had always made its components in-house. However, Bryan Component Works had recently offered to supply one component, S6, at a price of RM25 each. Zee uses 10,000 units of component S6 each year. The cost per unit of this component is as follows:

RM Direct materials 12.00 Direct labor 8.25 Variable overhead 4.50 Fixed overhead 2.00 Total 26.75

Refer to the information for Zee Manufacturing above. The fixed overhead is an allocated expense; none of it would be eliminated if production of component S6 stopped.

Required: 1. List the alternatives facing Zee Manufacturing with respect to production of component S6. 2. List the relevant costs for each alternative if Zee decides to purchase the component from Bryan. Predict whether the operating income will increase or decrease and propose the better alternatives.

Question.2

Refer to the information for Zee Manufacturing above. Assume that 75% of Zee Manufacturings fixed overhead for component S6 would be eliminated if that component were no longer produced.

Required: If Zee decides to purchase the component from Bryan, predict whether the operating income will increase or decrease and propose the better alternatives.