In a Make or Buy Decision, Which of the Costs

question 32

Multiple Choice

In a make or buy decision, which of the costs below are relevant

• A)Only conversion costs.
• B)Fixed costs that can be avoided in the future if the decision is to buy.
• C)Only direct material costs.
• D)Fixed costs that will not change regardless of the decision.

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Definitions:

Interest Payments

The amount paid by a borrower to a lender as compensation for the use of borrowed funds, usually calculated as a percentage of the principal amount.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits that could have been received but were given up.

Explicit Cost

Direct, out-of-pocket payments for resources employed in the production of goods or services.

Marginal Cost

The additional cost incurred by producing and selling one more unit.