Opportunity costs are not actual dollar outlays and

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Unformatted text preview: ccounts of an organization. How would this concept potentially relate to the Essex Company? e.g., if the part is outsourced (purchased) can the unused manufacturing factory space no longer necessary be rented for additional income? additional Managerial Accounting 12-21 Make vs. Buy Decisions Focus on: Costs that can be avoided by outsourcing (i.e., internal production costs) Costs of purchasing from outside supplier Ignore fixed costs that will continue to be incurred and those that are “sunk” Watch for opportunity costs Consider qualitative factors Managerial Accounting 12-22 Make vs. Buy Decisions Decision rule: Make if: (incremental costs of making + opportunity costs) < outside purchase price Buy if: (incremental costs of making + opportunity costs) > outside purchase price Managerial Accounting 12-23 Special Orders: Key Terms and Concepts A special order is a one-time order that is not considered part of the company’s normal ongoing business. When analyzing a special order only the incremental costs and benefits are relevant. Managerial Acc...
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