Question

Questions 1 & 2 in Photo 1

Question 3 in Photo 2

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 $13 each. Zion uses 4,600 units of Component K2 each year. The cost per unit of this component is as follows: Direct materials $7.59 2.91 Direct labour Variable overhead 1.89 3.00 Fixed overhead $15.39 Total 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? The input in the box below will not be graded, but may be reviewed and considered by your instructor 2. List the relevant costs for each alternative. If required, round your answers to two decimal places. Total Relevant Cost per unit Make per unit Buy per unit Differential Cost to Make

Answer 1

while making decision of buy vs make, only the avoidable costs are relevant.

Fixed costs which are unavoidable will occur in both the situation so they are irrelevant.

here the relevant costs are direct material, Labor,variable overhead.

as none of the fixed cost is avoidable if k2 is eliminated, none of it is relevant here.

1.There are two alternative (1) Make it internally (2) Buy from Bryce component works

2.relevant cost for making = Direct material + labor + variable overhead

=$7.59+$2.91+$1.89

=$12.39

relevant cost for buying = offer price = $13

make	$12.39	per unit
Buy	$13	per unit
differential cost to make [12.39-13]	($0.61)	per unit

3.if zion decided to purchase

	make	buy	increase(decrease) in income if bought
Material	$34,914[$4600*7.59]		$34,914
labor	$13,386[4600*2.91]		$13,386
variable overhead	$8,694[4600*1.89]		$8,694
cost of buying		$59,800[4600*$13]	(59800)
Total cost	$56,994	$59,800	($2806)

income will decrease by $2806 if biought

4.alternative to make the k2 is better.

because if bought the income will decrease by $2806