Question:

a) The per unit cost to make the component in-house is $______

b) The per unit cost to buy the component is $_____

c) Zion should (buy or make) the component because operating income will be increased by $_____

OBJECTIVE Exercise 13-15 Make-or-Buy Decision 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 S12.00 Direct labour Variable overhead Fixed overhead 8.25 3.50 2.00 $25.75 Total Assume that 75 percent of Zion Manufacturing's fixed overhead for component K2 would be eliminated if that component were no longer produced