Quick Answer: Compare The Costs And Make A Decision As To Which One You Would Propose To Buy.?

What is the difference between to make and to buy?

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 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 are some things that need to be considered during the make-or-buy the decision making process?

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.
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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.

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 meant by value analysis?

Value analysis is an approach to improving the value of a product or process by understanding its constituent components and their associated costs. It then seeks to find improvements to the components by either reducing their cost or increasing the value of the functions.

What are examples of relevant costs?

They are examples of past (sunk) costs. The original costs are not avoidable and are common to all alternatives. The cost of the locks, the labour cost of fitting them, and the cost of delivery are differential cash flows that will be incurred if the doors are modified. They are therefore relevant 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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What will always be a relevant cost?

Only fixed costs will be relevant. Both variable and fixed costs will be relevant. Both variable and fixed costs will be relevant.

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 factors do you consider in using buying different products?

The consumers consider various things like the characteristics of the product, price charged, availability of the product at the required location and much more. The personal factors include age, occupation, lifestyle, social and economic status and the gender of the consumer.

What are three factors that can be considered in the make or buy process?

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 five stages of the buyer decision process?

5 Stages of the Consumer Buying Decision Process

  • Need Recognition. The buying decision process begins when a consumer realizes they have a need.
  • Information Search.
  • Option Evaluation.
  • Purchase Decision.
  • Post-Purchase Evaluation.

Why make or buy decision is important?

Lower costs and higher capital investments One of the most notable advantages that a company enjoys when embracing a make-or-buy decision approach is that it can lower costs and increase capital investments, regardless of whether it decides to make materials in-house or subcontract from an external vendor.

What is sell or process further?

The sell or process further decision is the choice of selling a product now or processing it further to earn additional revenue. This choice is based on an incremental analysis of whether the additional revenues to be gained will exceed the additional costs to be incurred as part of the additional processing work.

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