he fixed overhead is an allocated expense; none of it would be eliminated if production of Component K3 stopped. REQUIRED: What are the alternatives facing Zoom Manufacturing with respect to production of Component K3? 2. List the relevant costs for each alternative. If Zoom decides to purchase the component from Brent, by how much will operating income or decrease? 3. Which alternative is better?
Zoom Manufacturing had always made its components in-house. However, Brent Component Works had recently offered to supply one component, K3, at a price of P25.00 each. Zoom uses 10,000 units of Component K3 each year. The cost per unit of this component is as follows:
Direct materials P 12.00
Direct labor 8.25
Variable overhead 4.50
Fixed overhead 2.00
Total P 26.75
Additional information:
The fixed overhead is an allocated expense; none of it would be eliminated if production of Component K3 stopped.
REQUIRED:
- What are the alternatives facing Zoom Manufacturing with respect to production of Component K3?
2. List the relevant costs for each alternative. If Zoom decides to purchase the component from Brent, by how much will operating income or decrease?
3. Which alternative is better?
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