Question

Which of the following costs is relevant to a make-or-buy decision of a particular part of a product? a.The depreciation on the plant used to manufacture the part b.The fixed annual rent paid for the office building c.The direct labor costs used to manufacture the part d.The salary of the sales manager who sells the product

Answer 1

Answer:

Correct answer is C

Explanation:

Direct labor cost is a relevant expense that is to be considered in a make or buy decision making process. It is important that the manager will know the alternative that will give lower relevant cost which will cause an increment to the company’s net profit. Direct labor cost is a variable cost that will vary on the production that is about to produce if the company will consider to make the product.