When making a make-or-buy decision for a part used in a product,which of the following item is relevant to the decision?
A) variable costs of making the part
B) contribution margin on new products manufactured in idle area not used for making part
C) rental income from idle plant when not making the part
D) all of the above

Question

Quizplus · Accepted Answer

All the options listed are relevant to a make-or-buy decision. Variable costs of making the part directly affect the cost comparison between making or buying. The contribution margin on new products that could be manufactured using the resources otherwise allocated for making the part represents an opportunity cost of making the part in-house. Rental income from idle plant space, if the part is not made in-house, is another opportunity cost that should be considered in the decision-making process.

When Making a Make-Or-Buy Decision for a Part Used in a Product,which