- 1 What is the make-or-buy decision?
- 2 What rule does the make-or-buy decision follow?
- 3 Why is the make-or-buy decision considered strategic?
- 4 What is the first step to making a make-or-buy decision?
- 5 What is make buy decision explain with examples?
- 6 When should a special order be accepted?
- 7 Why might a company make a product in-house rather than buy it?
- 8 What is special order decision?
- 9 Which cost help in taking make or buy decision?
- 10 What are the relevant costs in a make or buy decision?
- 11 What are the major trade offs in a make or buy decision?
- 12 What are the advantages of decision making?
- 13 When opportunity costs exist they are always relevant?
- 14 What are the aspects of cost control?
What is the 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.
What rule does the make-or-buy decision follow?
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.
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.
What is the first step to making a make-or-buy decision?
They proposed a make-or-buy decision process methodology through the following stages: planning, evaluation, internal costs, and performance analysis. Companies can perform their freight distribution in three different ways.
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.
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.
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 cost help in taking 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.
What are the relevant costs in a make or buy decision?
Examples of relevant costs in the context of a make or buy decision include direct labor, direct materials, variable overhead. Other costs that should be considered in this category are any incremental costs necessary for a part manufacturing.
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.
What are the advantages of decision making?
Advantages and Disadvantages of Decision Making
- Gives more information.
- Increase people’s participation.
- Provide more alternatives.
- Improves the degree of acceptance and commitment.
- Improves the quality of decisions.
- Helps in strengthening the organisation.
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 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.