Which of the Following Costs Is NOT Relevant to a Make-Or-Buy

question 72

Multiple Choice

Which of the following costs is NOT relevant to a make-or-buy decision?

• A) $10,000 of direct labor used to manufacture the parts
• B) $30,000 of depreciation on the plant used to manufacture the parts
• C) the supervisor's salary of $25,000 that will be avoided if the part is purchased from an outside supplier
• D) $15,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier

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Definitions:

Derivative Security

A financial instrument whose value is based on the value of another asset.

Economic Exposure

Long-term financial risk arising from permanent changes in prices or other economic fundamentals.

Cross-Hedging

Hedging an asset with contracts written on a closely related, but not identical, asset.

Basis Risk

Risk that futures prices will not move directly with the cash price hedged.