A company is considering whether to continue to make a product itself, or whether to buy it from another company. If it stops making the product, it will sell its existing factory and fire the workers who now make the product. Which of the following is usually not a "relevant" factor in making this decision?

Question

Quizplus · Accepted Answer

The original cost of the factory is a sunk cost and therefore not relevant to the decision at hand. The decision should be based on future costs and benefits, such as the price per unit from the other company, severance costs, and cash received from selling the old factory.

A Company Is Considering Whether to Continue to Make a Product