Which Of The Following Costs Is Not Relevant To A Make-or-buy Decision?

What is not relevant in a make or buy decision?

Make-or-buy decisions must be based on the relevant cost of each option. Relevant costs in make-or-buy decisions include all incremental cash flows. Any cost that does not change as a result of the decision should be ignored such as depreciation and indirect fixed costs.

Which of the following costs is not relevant in decision making?

Irrelevant costs are costs, either positive or negative, that would not be affected by a management decision. Irrelevant costs, such as fixed overhead and sunk costs, are therefore ignored when that decision is made.

What are the relevant costs in a make or buy decision?

Examples of relevant costs in the context of a make or buy decision include direct labor, direct materials, variable overhead. Other costs that should be considered in this category are any incremental costs necessary for a part manufacturing.

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Which of the following cost is relevant to a make or buy decision of a particular part of a product?

Explanation: Direct labor cost is a relevant expense that is to be considered in a make or buy decision making process.

What is an example of a make-or-buy decision?

Examples of the qualitative factors in make-or-buy decision are: control over quality of the component, reliability of suppliers, impact of the decision on suppliers and customers, etc. The quantitative factors are actually the incremental costs resulting from making or buying the component.

Which of the following is most likely relevant in a make-or-buy decision?

Which of the following is most likely relevant in a make-or-buy decision? In a make-or-buy decision, the original purchase price of equipment that is currently used in the manufacturing process is usually a relevant cost because the equipment can be sold for its salvage value. Fixed costs are always sunk costs.

What makes a cost relevant?

A relevant cost is a cost that only relates to a specific management decision, and which will change in the future as a result of that decision. The relevant cost concept is extremely useful for eliminating extraneous information from a particular decision-making process.

What costs are always relevant?

Relevant costs include differential, avoidable, and opportunity costs. Irrelevant costs include sunk and fixed overhead costs.

Which of the following is not relevant for decision making purposes?

Which of the following are not relevant to decision making? Sunk costs are based on historical events that cannot be changed by current or future events. Since sunk costs do not differ between the alternatives and do not affect present or future conditions they are not relevant for decision making purposes.

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Are future costs relevant in decision making?

Future costs are relevant in decision making if’ the decision will affect their amounts. It focuses on just that and ignores other costs which do not affect the future cash flows. Relevant costs are future costs that will differ among alternatives.

Which of the following is an example of sunk cost?

A sunk cost refers to a cost that has already occurred and has no potential for recovery in the future. For example, your rent, marketing campaign expenses or money spent on new equipment can be considered sunk costs. A sunk cost can also be referred to as a past cost.

Which of the following costs are always relevant in decision making?

Terms in this set (39) Which of the following costs are always relevant in decision making? Variable costs.

Why might a company make a product in house rather than buy it?

There are several reasons to manufacture in-house instead of outsourcing production. It gives your company a lot flexibility to alter the product as you produce it. In-house production ensures higher quality control. With production in-house, you can keep your overhead low by avoiding foreign managers.

When should a special order be accepted?

A special order generally should be accepted if: A) its revenue exceeds allocated fixed costs, regardless of the variable costs associated with the order.

When opportunity costs exist they are always relevant?

When opportunity costs exist, they are always relevant. When capacity is constrained, relevant costs equal incremental costs plus opportunity costs. If the $20,000 spent to purchase inventory could be invested an earn interest of $500, then the opportunity cost of holding inventory is $20,000.

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