Readers ask: Describe What A Make Or Buy Decision Is And List The Advantages Of Each?

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 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.

What are the main reasons for make-or-buy decisions?

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.

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 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.

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 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.

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.

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.

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

The decision as to whether to make vs. buy a product is based on a variety of factors, including the cost of either option, whether the product is available from other vendors, the expertise and resources your business has when it comes to manufacturing, and whether you have enough cash in place to make a purchase.

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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.

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.

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.

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