BAR Relevant Costs · Updated November 2026
Make or Buy Decision: Why Opportunity Cost Can Change the Answer
Make-or-buy problems are incremental decisions, not full-cost comparisons.
Relevant cost to make
Include avoidable variable costs and fixed costs that disappear if production is outsourced.
Relevant cost to buy
Include supplier price plus incremental purchasing, freight, quality, transition, or coordination costs.
Opportunity cost
If buying frees capacity that can earn contribution elsewhere, that benefit is relevant.
Exam strategy
Separate avoidable costs from unavoidable allocations and ask what happens to released capacity.
The takeaway
Make-or-buy decisions compare avoidable internal cost with external purchase cost and the opportunity value of capacity.
Related Summit resources
FAQ
Are unavoidable fixed costs relevant?
Usually not.
Can released capacity create a benefit?
Yes.
Should full absorption cost drive the decision?
No.