Choosing to outsource a component of a product or manufacture it internally is an example of a(n):
A) Opportunity cost.
B) Sunk cost.
C) Out-of-pocket cost.
D) Period cost.
E) Fixed cost.

Question

Quizplus · Accepted Answer

Outourcing vs. manufacturing internally is a decision that involves weighing the opportunity cost of each option. Opportunity cost is the cost of the next best alternative forgone. In this case, choosing to outsource means giving up the potential benefits of manufacturing in-house, such as greater control over quality and production timelines. On the other hand, choosing to manufacture internally means giving up the potential benefits of outsourcing, such as cost savings and greater specialization. Therefore, the best choice is A) Opportunity cost.

Choosing to Outsource a Component of a Product or Manufacture