When Deciding Whether to Make a Component Internally or to Outsource

question 340

Multiple Choice

When deciding whether to make a component internally or to outsource production, a company must:

• A) evaluate the landed cost of the component
• B) select the lowest-price source
• C) outsource only low-value components
• D) select the source with the shortest lead time

---

Definitions:

Work in Process Inventory

Goods partially completed but not yet ready for sale, particularly in manufacturing, representing an ongoing production stage.

Direct Materials

Basic substances that are specifically identifiable in the creation of a particular product.

Indirect Materials

Materials used in the production process but not directly traceable to a finished product, such as lubricants and cleaning supplies.

Direct Labor Costs

The total expenses incurred from the labor directly involved in the production of goods or services, distinct from indirect labor costs such as maintenance and supervision.