in exercise 8-39 number 1 the fixed overhead not included, why? The following table represents the impact of purchases on theoperating income:AlternativesDifferential cost tomake ($)CostsMakeBuy(s)(S)Purchase cost2525Direct materials(12)(12)Direct labor(8.25) (8.25)Variable overhead(4.5)(4.5)Increase in operatingincome per unit0.250.25Table (1)The amount of increase in operating income is $2,500. Since, theoperating income increases, Component K2 should be purchased.Working Notes:Calculation of the increase in operating income:Increase in operating income = Number of units × Operating income per unit= 10, 000 units x $0.25= $2, 500AcHence, the increase in operating income is $2,500.Go Use the following information for Exercises 8-38 and 8-39:Zion Manufacturing had always made its components in-house. However, Bryce ComponentWorks had recently offered to supply one component, K2, at a price of $25 each. Zion uses10,000 units of Component K2 each year. The cost per unit of this component is as follows:Direct materials$12.00Direct labor8.25Variable overhead4.50Fixed overhead2.00Total$26.75Exercise 8-38 Make-or-Buy DecisionRefer to the information for Zion Manufacturing above. The fixed overhead is an allocated ex-pense; 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 ofComponent K2?2. List the relevant costs for each alternative. If Zion decides to purchase the componentfrom Bryce, by how much will operating income increase or decrease?3. CONCEPTUAL CcONNECTION Which alternative is better?Exercise 8-39 Make-or-Buy DecisionRefer to the information for Zion Manufacturing above. Assume that 75% of ZionManufacturing's fixed overhead for Component K2 would be eliminated if that componentwere no longer produced.Required:1. CONCEPTUAL CONNECTION IfZion decides to purchase the component from Bryce,by how much will operating income increase or decrease? Which alternative is better?2. CONCEPTUAL CONNECTION Briefly explain how increasing or decreasing the 75%figure affects Zion's final decision to make or purchase the component.3. CONCEPTUAL CONNECTION By how much would the per-unit relevant fixed cost haveto decrease before Zion would be indifferent (i.e., incur the same cost) between "making"versus "purchasing" the component? Show and briefly explain your calculations.

Name: in exercise 8-39 number 1 the fixed overhead not included, why? The fo
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Description: in exercise 8-39 number 1 the fixed overhead not included, why? The following table represents the impact of purchases on theoperating income:AlternativesDifferential cost tomake ($)CostsMakeBuy(s)(S)Purchase cost2525Direct materials(12)(12)Direct la