If the cost to buy a part is less than the direct material,direct labor,and incremental overhead cost of making the part,the company should buy the part.

Question

Quizplus · Accepted Answer

If the cost to buy a part is less than the direct material, direct labor, and incremental overhead cost of making the part, it is more cost-effective for the company to purchase the part rather than making it. This decision is based on the economic concept of opportunity cost, where choosing one option (making the part) means sacrificing the benefits of the other option (buying the part). Therefore, it is more beneficial for the company to choose the cheaper alternative if it satisfies the same requirements and specifications.

If the Cost to Buy a Part Is Less Than