Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

تمرين 11

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:

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.
Required:
1. What are the alternatives facing Zion Manufacturing with respect to production of Component 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?