Discussion
None of the following belongs in the relevant cost of making a component in-house except
Answer: B
Correct answer: additional fixed cost caused by making it
A relevant cost is one that changes as a result of the decision. Fixed cost incurred specifically because the component is made in-house qualifies; factory rent, continuing head office overhead and depreciation on equipment already owned and idle are all unaffected by the choice and are therefore irrelevant, however they are allocated in the accounts. Including them is the standard way a make-or-buy analysis reaches the wrong answer.
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