Often asked: In A Make Or Buy Decision, Which Factor Would Encourage A Buy Decision?

What factors influence make-or-buy decisions?

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.

What are the two main factors that influence a make-or-buy decision?

A company’s decision on whether to make or buy is based on its core competence. The production cost and quality problems are the major triggers of a make-or-buy decision. Other factors are managerial decisions and a company’s long-term business strategy that dictate the current operations pattern.

What are the three pillars of make-or-buy decision?

This report explores the dynamics of make-or-buy decisions and presents a framework to help companies make the right decisions. The framework is built on three key pillars — business strategy, risks, and economic factors.

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.
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What are the relevant costs for decision making?

Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only when making specific business decisions. The concept of relevant cost is used to eliminate unnecessary data that could complicate the decision-making process.

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.

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.

When opportunity costs exist they are always relevant?

When opportunity costs exist, they are always relevant. When capacity is constrained, relevant costs equal incremental costs plus opportunity costs. If the $20,000 spent to purchase inventory could be invested an earn interest of $500, then the opportunity cost of holding inventory is $20,000.

Which of the following costs are always irrelevant in decision making?

Sunk costs are those costs that happened and there is not one thing we can do about it. These costs are never relevant in our decision making process because they already happened! These costs are never a differential cost, meaning, they are always irrelevant.

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.

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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.

What is a sourcing strategy in procurement?

Strategic sourcing is a procurement process that connects data collection, spend analysis, market research, negotiation, and contracting. It stops short of the actual purchase of and payment for goods and services.

What is strategic make-or-buy decision?

The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). Variables considered at the strategic level include analysis of the future, as well as the current environment.

What is a spend category?

A spend category is the logical grouping of similar expenditure items or services that have been clearly defined on an organizational level. The spend taxonomy is the way a procurement organisation classifies spend into hierarchies.

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