FAQ: In The Make-or-buy Decision, Which Of The Following Is A Reason For Making An Item?

What are the reasons behind make or buy decisions?

MAKE-OR-BUY DECISIONS

  • Cost considerations (less expensive to make the part)
  • Desire to integrate plant operations.
  • Productive use of excess plant capacity to help absorb fixed overhead (using existing idle capacity)
  • Need to exert direct control over production and/or quality.
  • Better quality control.

What is a make or buy decision quizlet?

Make vs. Buy Decision. the act of deciding whether to produce an item internally or buy the item from an outside supplier. make. Producing (i.e., manufacturing) materials or products internally (i.e., in operations owned by the company).

Why should a company conduct a make or buy analysis?

The make or buy decision involves whether to manufacture a product in-house or to purchase it from a third party. The outcome of this analysis should be a decision that maximizes the long-term financial outcome for a company.

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How do you evaluate make or buy decisions?

What Is a Make-or-Buy Decision?

  1. A make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it from an external supplier.
  2. Make-or-buy decisions, like outsourcing decisions, speak to a comparison of the costs and advantages of producing in-house versus buying it elsewhere.

When should a special order be accepted?

A special order generally should be accepted if: A) its revenue exceeds allocated fixed costs, regardless of the variable costs associated with the order.

Which of the following is a reason for outsourcing?

The biggest motivating reason for a company to outsource is to save money. There might be a problem with a supplier or a cost increase in materials and the company needs to reduce costs to stay competitive with its products. Another reason may be the need to downsize due to a merger or acquisition.

What are the relevant costs in a make or buy decision?

Relevant costs in make-or-buy decisions include all incremental cash flows. Any cost that does not change as a result of the decision should be ignored such as depreciation and indirect fixed costs.

What is the goal of purchasing quizlet?

The primary goals of purchasing are: Ensure uninterrupted flows of raw materials at the lowest total cost, improve quality of the finished goods produced, and maximize customer satisfaction. Money firms spend on goods and services.

Why might a company make a product in house rather than buy it?

There are several reasons to manufacture in-house instead of outsourcing production. It gives your company a lot flexibility to alter the product as you produce it. In-house production ensures higher quality control. With production in-house, you can keep your overhead low by avoiding foreign managers.

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What are the aspects of cost control?

Features of Cost control Cost control process involves setting targets and standards, ascertaining the actual performance, comparing the actual performance with standard, investigating the variances and taking corrective action.

What factors affect the make buy or lease decision?

Factors Influencing Make or Buy Decision:

  • Volume of Production:
  • Cost Analysis:
  • Utilization of Production Capacity:
  • Integration of Production System:
  • Availability of Manpower:
  • Secrecy or Protection of Patent Right:
  • Fixed Cost:
  • Availability of competent suppliers or vendors.

Which of the following is an example of sunk cost?

A sunk cost refers to a cost that has already occurred and has no potential for recovery in the future. For example, your rent, marketing campaign expenses or money spent on new equipment can be considered sunk costs. A sunk cost can also be referred to as a past cost.

What is special order decision?

Special-order decisions involve situations in which management must decide whether to accept unusual customer orders. These orders typically require special processing or involve a request for a low price.

Which items are excluded from cost sheet?

Items Excluded from Cost Accounts

  • Items of Appropriation of Profit. (a) Income tax paid and legal expenses incurred in connection with the assessment of income tax. (b) Transfer to reserves.
  • Items of Pure Finance. (a) Interest and dividends received on investments.
  • Abnormal items. (a) Cost of abnormal idle time.

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