Accounting · Cost Accounting

Consider the following statements regarding the decision-making rules for 'Make or Buy' scenarios in marginal costing: Statement 1: In situations where a manufacturing plant is operating at full capacity, the decision to produce a component internally is based strictly on a comparison between the variable cost and the external purchase price, ignoring any contribution lost from displaced production. Statement 2: When spare capacity exists within the firm, the decision to manufacture a part internally is determined by comparing its variable cost of making against the external purchase price, as existing fixed costs remain constant regardless of the choice.