If a company has sufficient excess 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
D) Costs of buying from the outside vendor
E) A, B, and D only

Question

Quizplus · Accepted Answer

When a company has sufficient excess capacity, the relevant costs for the make-or-buy decision include direct materials (since these costs will be incurred if the product is made), variable overhead (as it varies with production), and the costs of buying from the outside vendor (to compare against the costs of making the product). Fixed overhead is not relevant in this scenario because it will be incurred regardless of the decision.

If a Company Has Sufficient Excess Capacity, Which of the Following