7. Decision Making

Make Or Buy — Quiz

Test your understanding of make or buy with 5 practice questions.

Practice Questions

Question 1

A company is evaluating a 'make or buy' decision for 6,000 units. The variable cost to make is $$ \$12 $ per unit. If the company makes the component, it will incur an additional fixed cost of $ \$20,000 $. If it buys the component, the purchase price is $ \$16 $$ per unit. What is the total relevant cost of making the component?

Question 2

When a company decides to 'make' a component in-house, what is a primary advantage related to quality control?

Question 3

A company requires 10,000 units of a component. The variable cost to make is $$ \$9 $$ per unit. If the company makes the component, it will use factory space that could otherwise be rented out for $$ \$25,000 $ annually. The purchase price from an external supplier is $ \$13 $$ per unit. What is the total relevant cost of making the component?

Question 4

Which of the following qualitative factors is most concerned with a company's ability to protect its proprietary designs and manufacturing processes?

Question 5

A company is considering buying a component. The purchase price is $$ \$20 $ per unit. If the company buys the component, it can avoid an existing fixed cost of $ \$12,000 $$ that is currently allocated to this component. If 4,000 units are needed, what is the total relevant cost of buying the component?