Costs relevant to an insourcing vs. outsourcing decision include variable manufacturing costs as well as
Answer(s): A
Relevant costs are anticipated costs that will vary among the choices available. If two courses of action share some costs, those costs are not relevant because they will be incurred regardless of the decision made. Relevant costs include fixed costs that could be avoided if the items were purchased from an outsider.
What is the opportunity cost of making a component part in a factory given no alternative use of the capacity?
Answer(s): D
Opportunity cost is the benefit forgone by not selecting the best alternative use of scarce resources. The opportunity cost is zero when no alternative use is available.
In an insourcing vs. outsourcing situation, which of the following qualitative factors is usually considered?
Special technology may be available either within or outside the firm that relates to the particular product. The firm may possess necessary skilled labor or the supplier may.Special materials requirements may also affect the decision process because one supplier may have monopolized a key component. Another factor to be considered is that assurance of quality' control is often a reason for making rather than buying.
In an insourcing vs. outsourcing decision1 the decision process favors the use of total costs rather than unit costs. The reason is that
Unit costs should be used with extreme care. In each situation, they may be calculated based on a different volume level from that anticipated, so comparability may be lost. Irrelevant costs included in the unit cost should be disregarded; only relevant costs should be included in the analysis. Allocated costs should also be ignored, and only the relevant costs that will change with the option chosen should be considered.
Which of the following qualitative factors favors the buy choice in an insourcing vs.outsourcing decision?
The maintenance of long-run relationships with suppliers may become paramount in a make-or-buy decision. Abandoning long-run supplier relationships may cause difficulty in obtaining needed parts when terminated suppliers find it advantageous not to supply parts in the future.
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