Make-or-buy decision prefers buying when the outside price is:
AEqual to marginal cost
BAbove marginal cost of in-house
CBelow marginal cost of in-house
DHigher than total cost
Answer & Solution
Correct answer: C. Below marginal cost of in-house
1. In a make-or-buy decision, the relevant comparison is the outside price against the in-house marginal (variable) cost.
2. Fixed cost is irrelevant if it is unavoidable.
3. If the outside price is below in-house marginal cost, buying is cheaper.
4. Hence buying is preferred when outside price is below in-house marginal cost.
_Source: ICAI BoS Inter Paper 3, Ch 14 "Marginal Costing", §14.9.1 ¶2_
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