In a make-or-buy decision, which costs can be considered relevant?
A) Unavoidable variable costs, incremental fixed costs, and sunk costs
B) Incremental variable costs, unavoidable fixed costs, and opportunity costs
C) Incremental variable costs, incremental fixed costs, and sunk costs
D) Incremental variable costs, incremental fixed costs, and opportunity costs

Question

Quizplus · Accepted Answer

Relevant costs in a make-or-buy decision include incremental variable costs (costs that change with the decision), incremental fixed costs (new fixed costs that are incurred because of the decision), and opportunity costs (benefits foregone by not choosing an alternative). Sunk costs are not considered because they have already been incurred and cannot be recovered.

In a Make-Or-Buy Decision, Which Costs Can Be Considered Relevant