Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2,
Direct materials ........ $12.00
Direct labor ......... 8.25
Variable overhead ....... 3.50
Fixed overhead ......... 2.00
Total .............. $25.75
Assume that 75 percent of Zion Manufacturing’s fixed overhead for Component K2 would be eliminated if that component were no longer produced.
If Zion decides to purchase the component from Bryce, by how much will operating income increase or decrease? Which alternative is better?
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Chapter # 13
Section: Multiple Choice Questions
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Question Posted: February 04, 2012 00:05:20