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Part $1$

$"$A component part should be purchased whenever the purchase price is less than its total manufacturing cost per$$ unit." Do you$$ agree? Why?

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Part $1$

A$.$

Yes. The cost of the component is comprised of fixed and variable costs. These costs make up the cost for the make alternative. The purchase cost is used in the buy alternative. The lowest cost alternative should always be selected when evaluating the decision to make or buy the component.

B$.$

No$.$ Some of the total unit costs to manufacture a product may be fixed$$ costs, and,$$ hence, will not differ between the make and buy alternatives. These fixed costs are irrelevant to the$$ make$-$or$-$buy decision. The key comparison is between purchase costs and the costs that will be saved if the company purchases the component parts from outside plus the additional benefits of using the resources freed up in the next best alternative use$($opportunity cost$).$

C$.$

No$.$ The variable costs are costs the company will pay if the component is manufactured. Since these costs will be irrelevant if the component is$$ purchased, only the fixed costs need to be evaluated in the$$ make$-$or$-$buy decision. If the fixed costs are less than the purchase cost the component should be purchased.

D$.$

Yes. The fixed costs are costs the company will pay if the component is manufactured. Since these costs will be irrelevant if the component is$$ purchased, only the variable costs need to be evaluated in the$$ make$-$or$-$buy decision. If the variable costs are less than the purchase cost the component should be manufactured.