What is a valid reason to keep fixed costs in the make or buy analysis?

In a make or buy analysis, keeping fixed costs in consideration is essential because they impact the total cost structure. Fixed costs are expenses that do not change with production levels, meaning they remain constant regardless of whether a company decides to make a product in-house or outsource it.

When analyzing the total costs associated with each option, understanding how fixed costs contribute to the overall expense profile is crucial. They can influence the decision-making process by affecting cost per unit calculations; if production levels decrease, the same fixed costs are allocated over fewer units, potentially leading to higher costs per unit.

The implications of fixed costs must be assessed to ensure that the analysis reflects the true economic picture of each option. Therefore, assessing the impact of these costs is vital for managers making informed choices about whether to produce goods internally or purchase them externally.