Answer the following question(s)using the information below.Central Medical Supply Inc., a manufacturer of medical testing equipment, has $240,000 worth of an obsolete line of testing equipment.The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $64,000; the market value would then be $136,000.However, Tripac offered to purchase the obsolete equipment as is for $88,000.
-For make-or-buy decisions, relevant costs include
A)direct material costs plus direct labour costs.
B)incremental costs plus opportunity costs.
C)differential costs plus sunk costs.
D)incremental costs plus fixed costs.
E)variable costs plus fixed overhead.

Question

Quizplus · Accepted Answer

In this scenario, the relevant costs for the make-or-buy decision would include the incremental costs of adapting the equipment to fit another line ($64,000) and the opportunity cost of accepting Tripac's offer ($88,000). The sunk cost of the obsolete equipment ($240,000) is not relevant to the decision because it is already incurred and cannot be recovered. Therefore, choice B, which includes incremental costs and opportunity costs, is the best option.

Answer the Following Question(s)using the Information Below