Opportunity costs are often relevant in make or buy decisions.

Question

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Opportunity costs refer to the benefits that could have been gained from the next best alternative that was not chosen. In make or buy decisions, a company must weigh the costs and benefits of making a product or service in-house versus buying it from an external supplier. The opportunity cost of making the product in-house would be the benefits foregone from not using those resources for another purpose, such as investing them in a different project or generating revenue through a different product or service. Therefore, opportunity costs are often relevant in make or buy decisions.

Opportunity Costs Are Often Relevant in Make or Buy Decisions