Often asked: When Considering A Make-or-buy Decision, Managers Should?

When making a make-or-buy decision managers should consider?

Statement (a) is correct as when making make or buy decisions, managers consider any alternate use of the facility in order to ascertain any cost benefit and factor it into the incremental analysis.

Which of the following factors should be considered in a make-or-buy decision?

The two most important factors to consider in a make-or-buy decision are cost and the availability of production capacity.

When making decisions managers should consider all relevant costs which include?

When making decisions, managers should consider all relevant benefits and relevant costs, which include: (Check all that apply.) A student purchased a used car for $5000. Three months later, the student discovers the car needs major repairs which will cost $2000.

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Which cost is taken into consideration for make-or-buy decision?

Make or buy decision is the production decision made by the company i.e whether to buy the product or to manufacture the product. The cost of buying and manufacturing are both taking into consideration while making the decision. Hence, the cost of production is considered for ‘make or buy’ decision.

How do you calculate make-or-buy decision?

Analysis for Make or Buy Decision Conversion cost = manufacturing overheads + direct labour read more, cost of fuel and electricity, labor cost, warehousing or storage cost, shipping cost, and the cost of capital. The benefits include higher margins from in-house production.

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 do you mean by make-or-buy decision?

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

What is make buy decision explain with examples?

Examples of the qualitative factors in make-or-buy decision are: control over quality of the component, reliability of suppliers, impact of the decision on suppliers and customers, etc. The quantitative factors are actually the incremental costs resulting from making or buying the component.

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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.

What is the final step of the decision-making process?

The review stage is the last step of the decision-making process here, you will evaluate whether or not the specific outcome resolved the problem or opportunity you identified initially.

Which of the following type is cost is not relevant to managers when making decisions?

Future costs that do NOT differ among the alternatives are NOT relevant in a decision. A sunk cost is a cost that has already been incurred and cannot be avoided regardless of what action is chosen.

When making a short term special order decision a company should?

When faced with a special order decision, a company should consider the following three items:

  1. Does the company have the excess capacity to fulfill this order?
  2. Will the order be profitable?
  3. Will the order affect planned sales, now or in the future?
  4. Calculate the contribution margin per unit.

What are the major trade offs in a make or buy decision?

Dabhilkar (2011) points out that there are trade-offs in ‘make or buy’ decision-making regarding their main reasons ( costs, quality, core activity focus, flexibility, and innovation ) that often conflict and imply that a company cannot have all these reasons when outsourcing an activity.

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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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.

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