Question

Jobart Company is currently operating at full capacity. It is considering buying a part from an outside supplier rather than making it in-house. If Jobart purchases the part, it can use the released productive capacity to generate additional income of $30,000 from producing a different product. When conducting incremental analysis in this make-or-buy decision, the company should:

a. add $30,000 to other costs in the "Make" column.
b. add $30,000 to other costs in the "Buy" column.
c. subtract $30,000 from the other costs in the "Make" column.
d. No correct answer is given.

Answer 1

In incremental analysis for Jobart Company's make-or-buy decision, the opportunity cost of $30,000 from not producing a different product should be added to the 'Make' column, as it is an opportunity lost if the company chooses to make the part in-house.

Step-by-step explanation:

When conducting incremental analysis in a make-or-buy decision, Jobart Company should consider the opportunity cost of using the released productive capacity to generate additional income. Since Jobart can use the capacity to generate an additional income of $30,000 by producing a different product if it buys the part instead of making it, this opportunity cost should be acknowledged in the analysis. Therefore, the correct approach is to add $30,000 to other costs in the "Make" column since this cost is an opportunity lost if the part is manufactured in-house instead of being bought and using the capacity elsewhere.