Chapter 12, Problem 15F15

To determine

Decision of Making or Buying:

When a company takes a decision, whether to manufacture a component internally or to buy it from outside, it is called make or buy decision. While taking the decision, the variable costs of manufacturing the product are compared with the purchase price of the product when bought from the outside supplier.

In relevant costing, the decision to make or buy a product component depends upon the analysis of costs. Avoidable fixed costs and opportunity costs are also considered in the analysis.

The amount that the company is ready to pay (per pound) for extra raw materials when using 160,000 pounds of raw material.