Which of the following costs is NOT relevant to a make-or-buy decision?
A) $20,000 of direct labor used to manufacture the parts
B) $25,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier
C) the supervisor's salary of $35,000 that will be avoided if the part is purchased from an outside supplier
D) $40,000 of depreciation on the plant used to manufacture the parts

Question

Quizplus · Accepted Answer

Depreciation on plant used to manufacture the parts is a sunk cost and not relevant to a make-or-buy decision. The decision only considers costs that will change depending on whether the company makes or buys the product. Direct labor, rent, and supervisor's salary are all relevant costs that will change based on the decision.

Which of the Following Costs Is NOT Relevant to a Make-Or-Buy