Determine the profit equation

1. How are opportunity costs incorporated into make-or-buy decisions?

2. What factors other than costs must be considered before making a make-or-buy decision?

3. What is a keep-or-drop decision? What are the relevant variables in a keep-or-drop decision?

4. What factors other than costs and revenues must be considered when making a keep-or-drop decision?

Use the following information to determine the profit equation:

Selling price per unit                       $              65

Variable cost per unit                                     24

Fixed cost per year                          260,000

Solution: