2.4.2 Making versus Purchasing (Outsourcing) Studies In the short run, say, one year or less, a company may consider producing an item in-house even though the item can be purchased (outsourced) from a supplier at a price lower than the company's standard production costs. This could occur if: 1. direct, indirect, and overhead costs are incurred regardless of whether the item is purchased from an outside supplier and 2. the incremental cost of producing an item in the short run is less than the supplier's price. Therefore, the relevant short-run costs of make versus purchase decisions are the incremental costs incurred and the opportunity costs of the resources involved. Opportunity costs may become significant when in-house manufacture of an item causes other production opportunities to be forgone (often because of insufficient capacity). But in the long run, capital investments in additional manufacturing plant and capacity are often feasible alternatives to outsourcing. Because engineering economy often deals with changes to existing operations, standard costs may not be too useful in make-versus purchase studies. In fact, if they are used, standard costs can lead to uneconomical decisions. Choose one of the two statements cited under Making versus Purchasing and explain it further.