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    ? Among The Given, Identify The Relevant Cost in Insourcing vs. Outsourcing Decision

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    Jerome Eziekel Posada Panaligan
    The document discusses opportunity costs and relevant costs for insourcing vs outsourcing decisions. It states that if there is no alternative use of a factory's capacity, then there is no opportunity cost to making a component part in that factory. It also identifies that avoidable fixed costs are relevant for insourcing vs outsourcing decisions, as these costs can be avoided by outsourcing, while other fixed costs are unavoidable. The approach to an insourcing vs outsourcing decision involves analyzing avoidable costs, rather than depending on a company's normal volume or the type of costing system used.

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    ? Among The Given, Identify The Relevant Cost in Insourcing vs. Outsourcing Decision

    Uploaded by

    Jerome Eziekel Posada Panaligan
    56 views2 pages
    The document discusses opportunity costs and relevant costs for insourcing vs outsourcing decisions. It states that if there is no alternative use of a factory's capacity, then there is no opportunity cost to making a component part in that factory. It also identifies that avoidable fixed costs are relevant for insourcing vs outsourcing decisions, as these costs can be avoided by outsourcing, while other fixed costs are unavoidable. The approach to an insourcing vs outsourcing decision involves analyzing avoidable costs, rather than depending on a company's normal volume or the type of costing system used.

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    The document discusses opportunity costs and relevant costs for insourcing vs outsourcing decisions. It states that if there is no alternative use of a factory's capacity, then there is no opportunity cost to making a component part in that factory. It also identifies that avoidable fixed costs are relevant for insourcing vs outsourcing decisions, as these costs can be avoided by outsourcing, while other fixed costs are unavoidable. The approach to an insourcing vs outsourcing decision involves analyzing avoidable costs, rather than depending on a company's normal volume or the type of costing system used.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    56 views2 pages

    ? Among The Given, Identify The Relevant Cost in Insourcing vs. Outsourcing Decision

    Uploaded by

    Jerome Eziekel Posada Panaligan
    The document discusses opportunity costs and relevant costs for insourcing vs outsourcing decisions. It states that if there is no alternative use of a factory's capacity, then there is no opportunity cost to making a component part in that factory. It also identifies that avoidable fixed costs are relevant for insourcing vs outsourcing decisions, as these costs can be avoided by outsourcing, while other fixed costs are unavoidable. The approach to an insourcing vs outsourcing decision involves analyzing avoidable costs, rather than depending on a company's normal volume or the type of costing system used.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    The opportunity cost of making a component part in a factory given no alternative use

    of the factory.
     If there is no alternative, there is no opportunity costs. Opportunity costs occur only
    if there are at least two alternatives where a decision must be drawn. The benefit of
    the alternative not taken (or sacrificed) will be the opportunity costs of the
    alternative followed.

    9. Cost relevant to an insourcing vs. outsourcing decision include variable


    manufacturing costs as well as
    A. Avoidable fixed costs. C. Property taxes.
    B. Factory depreciation. D. Factory management costs. (cma)

    10. A
    ? Among the given, identify the relevant cost in insourcing vs. outsourcing decision.
     Insourcing means making and outsourcing is buying. Choice-letter “a” is correct
    because avoidable fixed costs are relevant cost of making. Choice-letters “b”, “c”,
    and “d” are incorrect because they are all unavoidable fixed costs and are
    irrelevant in the decision to make or buy a part.

    11. A company’s approach to an insourcing vs. outsourcing decision.


    A. Depends on whether the company is operating at or below normal volume.
    B. Involves an analysis of avoidable costs.
    C. Should use absorption (full) costing.
    D. Should use activity-based costing. (cma)

    11. B
    ? A statement with regard to insourcing vs. outsourcing decision.
     Choice-letter “b” is correct because make or buy decision involves an analysis of avoidable costs,
    including that of fixed costs. Choice-letter “a” is incorrect because normal volume has not
    relevance in the make or buy decision. Choice-letters “c” and “d” are incorrect because the
    relevance of a cost does not depend on the cost system used to generate it, whether absorption
    costing, variable costing, activity- based costing, and others.

    12. What is the opportunity cost of making a component part in a factory given no alternative use of
    the capacity?
    A. The variable manufacturing cost of the component.
    B. The total manufacturing cost of the component.
    C. The total variable cost of the component.
    D. Zero. (cma)

    12. D
    ? Determine the opportunity cost.
     Opportunity cost is the benefit sacrificed in favor of the decision made. They are not recorded on
    the financial books and are theoretical in nature. The alternatives for the decisions are to make
    or buy a part. Making the part would make use of the released facilities while buying the part
    from an outside supplier would make the released facilities idle. Since the idle facilities have no
    alternative use, therefore, there is no benefit foregone or sacrificed.
    Choice-letters “a”, “b”, and “c” are incorrect because they are all sunk costs, already
    recorded, irrelevant, and are not opportunity costs.

    13. Plainfield Company manufactures part G for use in its production cycle. The cost per unit for
    10,000 units of part G are as follows:
    Direct materials P 3

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