ECONOMICS

Detailed explanation-1: -A decision whether to continue to make a product or buy it externally, depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources. An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.

Detailed explanation-2: -A make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it from an external supplier.

Detailed explanation-3: -The sell or process further decision is the choice of selling a product now or processing it further to earn additional revenue. This choice is based on an incremental analysis of whether the additional revenues to be gained will exceed the additional costs to be incurred as part of the additional processing work.

Detailed explanation-4: -Incremental costs are relevant in making short-term decisions or choosing between two alternatives, such as whether to accept a special order.

Detailed explanation-5: -Hence, the cost of production is considered for ‘make or buy’ decision.