- Relevant costs, Opportunity costs, and Sunk costs are often involved in a make
or buy decision for a company. By buying a part instead of making it, the
company could earn an additional $50,000-that's the Opportunity cost. Relevant
costs, in deciding whether to 'special' manufacture something, would be your
VC-Variable costs only-since your FC-Fixed Costs-will stay the same whether or
not you are producing anything. The KEY: you have the capacity to manufacture
it. Therefore, as long as the selling price is greater than your VC, you should
accept the special order. You will make money! A Sunk cost is money already
spent: you can not get it back: comparable to a bad investment, or losing money
at the casino.
Think of the decision in your life WHERE YOU DECIDED TO TAKE
A SABBATICAL YEAR TO TRAVEL INSTEAD OF WORKING. That created an
Opportunity cost decision. How did you make your decision?
Sample Solution