Make or Buy Decision with Opportunity Cost

This video shows the optimal way for firms to choose whether to manufacture a product component internally or purchase the component from an external supplier when there is an opportunity cost involved. The video provides an example in which the space currently used to manufacture the saddle for a bicycle could instead be used to generate contribution margin for another product. This opportunity cost must be considered when totaling the relevant costs of manufacturing the product, because the segment profit margin is being foregone by manufacturing in-house.-
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[@amogelangradebe6901]

I don't seem to understand why we have to add the opportunity cost instead of subtracting it

[@Ayoub_thewip]

If I will get to use the space ocuppied by saddles machine to manufacture an X product instead of saddles and make 20000 out of it. Then I will be just losing that amount if I maintain producing saddles instead of X , therefore that would be a + cost of making saddles inhouse
Hope this explanation is relevant

[@wassaybutt5399]

Plz make a video on make or but with limiting factor

[@michaelanson55]

HI there, I would have deducted the opportunity cost of $20K from the cost of purchasing from outside supplier; So $50k - $20K. Could you explain to me where my trend of thought is going wrong?

[@danielj5650]

you are wrong

[@eternalephemeros3139]

its forgone benefit/revenue cuz they decide to make themselves.. so really, for opportunity cost, there is only addition, no deduction.. hope this helps

[@dabadeee]

@@eternalephemeros3139 THANK YOU I finally got it from your comment

[@danielpilz2553]

if you subtract the 20k from 50k, the difference between the two is still 16k favoring buy. (30k

[@yvonnetsotetsi9055]

why are all your videos not full videos...am crying becase they help me

[@007binesh]

So, what is the best option here ? To buy it from outside suppliers or to make it?

[@seh1759]

I don't think you get the angle. It is saying, if the company choose to manufacture some thing else in house(not seats), it will make a 20000 profit. But now if they choose to make seats in side rather than buying seats from outside suppliers, they'll give up an opportunity on getting a 20000 profit. So by them considering making seats in house, 20000 will be an opportunity benefit forgone

[@CM-ns2og]

Please fix the video.