If a company is currently operating at full production capacity, which of the following costs are relevant to the decision to make or buy a new product?
A) Direct materials
B) Variable overhead
C) Fixed overhead avoided
D) Costs of buying from the outside vendor
E) All of the above

Question

Quizplus · Accepted Answer

All the options listed are relevant to the decision to make or buy a new product when a company is operating at full production capacity. Direct materials and variable overhead are relevant because they would change based on the decision. Fixed overhead avoided is relevant if making the product in-house would allow the company to avoid certain fixed costs. Costs of buying from the outside vendor are directly relevant as they represent the alternative cost of not producing the product in-house.

If a Company Is Currently Operating at Full Production Capacity