In a make-or-buy decision when there are alternative uses for capacity, the opportunity cost of idle capacity is irrelevant.

Question

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In a make-or-buy decision where there are alternative uses for capacity, the opportunity cost of idle capacity is relevant. Choosing to make a product in-house may tie up capacity that could have been used for a more profitable alternative use. Therefore, the opportunity cost of idle capacity should be considered in the decision-making process.

In a Make-Or-Buy Decision When There Are Alternative Uses for Capacity