In a make-or-buy decision when there are alternative uses for capacity, the opportunity cost of idle capacity is relevant.

Question

Quizplus · Accepted Answer

The opportunity cost of idle capacity is relevant in a make-or-buy decision when there are alternative uses for that capacity. If the capacity can be used for other purposes, then the cost of not using it must be taken into account when deciding whether to make a product in-house or buy it from an outside supplier. This means that the opportunity cost of idle capacity is a relevant factor in the decision-making process.

In a Make-Or-Buy Decision When There Are Alternative Uses for Capacity