MakeorBuy Decision
Assume that of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced.
Required:
Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or decrease as compared to making the component inhouse
$
Which alternative is better?
Purchase the component from Canyonlands :
Conceptual Connection: Briefly explain how increasing or decreasing the figure affects Arches's final decision to make or purchase the component.
As the percentage of avoidable fixed cost increases above total relevant costs of making the component increase, causing the "purchase" decision to be
financially appealing compared to the "make" option than it was when the percentage was In other words, as
costly and
i appealing financially as the "purchase" option. Finally, as the percentage of avoidable fixed cost decreases low enough and the total relevant costs of making the component decrease, the
option becomes the more financially appealing option
