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 $12 each. Zion uses 4,800 units of Component K2 each year. The cost per unit of this component is as follows:
Direct materials $7.36
Direct labor 2.66
Variable overhead 1.15
Fixed overhead 4.00
Total $15.17
The fixed overhead is an allocated expense; none of it would be eliminated if production of Component K2 stopped.List the relevant costs for each alternative.
