In deciding whether to manufacture a part or buy it from an outside vendor,a cost that is irrelevant to the short-run decision is:
A)Direct labor.
B)Variable overhead.
C)Fixed overhead that will be avoided if the part is bought from an outside vendor.
D)Fixed overhead that will continue even if the part is bought from an outside vendor.

Question

Quizplus · Accepted Answer

Fixed overhead that will continue even if the part is bought from an outside vendor is irrelevant because it will exist regardless of whether the company manufactures the part itself or outsources it. Therefore, it does not affect the cost comparison between manufacturing and purchasing the part. Direct labor and variable overhead are relevant costs that should be considered in the short-run decision. Fixed overhead that can be avoided if the component is bought from an outside vendor is a relevant cost that should be considered in the decision.

In Deciding Whether to Manufacture a Part or Buy It