Question: Which Of The Following Is Not One Of The Advantages Of “buy” In A Make-or-buy Decision?

What are the benefits of make-or-buy?

Companies use the total transaction costs accrued in developing products to reach a make-or-buy decision. Make-or-buy decisions reward firms with a competitive advantage and reduce the cost of production and capital investment.

Is it economically better to make-or-buy the component?

Economically, an item or component is a candidate for in house production, if the company has sufficient capacity and if the components value is high enough to cover the variable costs of production and make some contribution towards the fixed cost. Low volumes favor buying, which incurs very little or no fixed costs.

Why is the make-or-buy decision considered strategic?

The common factors that companies consider in a make versus buy decision include proprietary knowledge, capabilities, quality, capacity, labor, volume, timing, and cost. At the strategic level, the decision to make or buy a component directly impacts organizational profit, and the firm’s reputation in their industry.

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What is not relevant in a make-or-buy decision?

Make-or-buy decisions must be based on the relevant cost of each option. 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 do u 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.

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 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 is the problem of make or buy resolved?

A long term contract with a reliable supplier may solve this problem. (5) Can an alternative use be found for resources made idle by a decision to purchase from outside.

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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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.

What is make buy decision explain with examples?

A Make or Buy Decision is a decision made to either manufacture a product/ service in house or buy it from outside suppliers (outsourcing) based on cost-benefit analysis.

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.

Which of the following is most likely relevant in a make-or-buy decision?

Which of the following is most likely relevant in a make-or-buy decision? In a make-or-buy decision, the original purchase price of equipment that is currently used in the manufacturing process is usually a relevant cost because the equipment can be sold for its salvage value. Fixed costs are always sunk costs.

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.

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