In deciding whether to manufacture a part or buy it from an outside supplier, which of the following is an irrelevant cost?
A) Direct labor
B) Variable overhead
C) Fixed overhead that will be avoided if the part is purchased from an outside supplier
D) Fixed overhead that will continue even if the part is purchased from an outside supplier

Question

Quizplus · Accepted Answer

Fixed overhead that will continue even if the part is purchased from an outside supplier is an irrelevant cost in the make-or-buy decision because it will not be affected by the decision. The relevant costs in this decision would be the costs that would be saved or incurred as a result of the decision, such as direct labor, variable overhead, and fixed overhead that will be avoided if the part is purchased from an outside supplier.

In Deciding Whether to Manufacture a Part or Buy It