Relevant costs in a make-or-buy decision of a part include:
A)setup overhead costs for the manufacture of the product using the outsourced part.
B)currently used manufacturing capacity that has alternative uses when part is outsourced.
C)annual plant insurance costs that will remain the same.
D)corporate office costs that will be allocated differently.

Question

Quizplus · Accepted Answer

Relevant costs are those that will change as a result of the decision. In a make-or-buy decision, the cost of currently used manufacturing capacity that has alternative uses when the part is outsourced is relevant because it represents an opportunity cost. If the part is outsourced, the company can use the manufacturing capacity for other purposes, potentially generating additional revenue.

Relevant Costs in a Make-Or-Buy Decision of a Part Include