Answered: Required : i) List the alternatives…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 39E

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Required : i) List the alternatives facing Zee Manufacturing with respect to production of component S6 . ii) List the relevant costs for each alternative if Zee decides to purchase the component from Bryan . Predict whether the operating income will increase or decrease and better alternatives . b) Refer to the information for Zee Manufacturing above . Assume that 75 % of Zee Manufacturing's fixed overhead for component S6 would be eliminated if that component were no longer produced . Required : If Zee decides to purchase the component from Bryan , predict whether the operating income will increase or decrease and propose the better alternatives .

a) Zee Manufacturing had always made its components in-house. However, Bryan
Component Works had recently offered to supply one component, S6, at a price of RM25
each. Zee uses 10,000 units of component S6 each year. The cost per unit of this component
is as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead
RM
12.00
8.25
4.50
2.00
26.75
Refer to the information for Zee Manufacturing above. The fixed overhead is an allocated
expense; none of it would be eliminated if production of component S6 stopped.

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