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فيديو شرح Make or Buy Decision with Opportunity Cost. Cost Accounting Course. CPA Exam BAR. CMA Exam ضمن كورس محاسبة التكاليف شرح قناة Farhat Lectures. The # 1 CPA & Accounting Courses، الفديو رقم 33 مجانى معتمد اونلاين
How do you make a make-or-buy (outsourcing) decision, and how does opportunity cost change it? In this cost accounting lesson for CPA BAR and CMA candidates, Professor Farhat explains how to compare the relevant costs of producing a part internally versus buying it — including avoidable fixed costs — and how adding the opportunity cost of freed-up capacity can flip the decision. Includes a worked example and qualitative factors.
Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students.
Video Timeline & Key Concepts:
0:00 — Introduction
0:47 — Goal: choose the alternative with the lowest relevant cost
1:03 — Quantitative vs qualitative factors
1:23 — Which costs are relevant
2:18 — Example: Cube Manufacturing make vs buy
5:32 — Incorporating opportunity cost
Frequently Asked Questions:
What is a make-or-buy decision?
A make-or-buy decision is the choice between producing a component internally or purchasing it from an outside supplier. The goal is to select the alternative with the lowest relevant cost while also weighing qualitative factors.
Which costs are relevant in a make-or-buy decision?
Relevant costs are those that differ between the alternatives, such as direct materials, direct labor, variable overhead, and any fixed costs that can be avoided by outsourcing. Unavoidable fixed costs are not relevant because they remain either way.
What is opportunity cost in a make-or-buy decision?
Opportunity cost is the benefit given up by using a resource for one purpose instead of the next best alternative. If the space freed by buying the part could be leased or used to generate income, that forgone income is an opportunity cost that belongs in the analysis.
How does opportunity cost change the decision?
Including the opportunity cost of freed-up capacity raises the effective cost of making the part internally. This can tip the analysis toward buying, even when a simple cost comparison favored making the part.
What qualitative factors matter in outsourcing?
Beyond the numbers, managers should consider supplier quality, reliability of the supply chain, control over production, and long-term strategic effects. These qualitative factors can outweigh a small financial advantage.
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