What Factors Will You Consider At The Time of "Make or Buy" Decision!
Decision making, whether it be short-term or long-term, may be defined in its simplest terms as the process of choosing' between or among alternative courses of action. This article will guide you to Make or Buy Decision with respect to the vital cost-saving decision known as make-or-buy.
In most corporations with absentee owner's (i.e: stockholders) management is delegated the responsibility for making all the important economic decisions which will eventually result in company profits or losses
In most corporations with absentee owner's (i.e: stockholders) management is delegated the responsibility for making all the important economic decisions which will eventually result in company profits or losses
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Faced with a make-or-buy decision, the manger should:
- Consider the quantity, quality, and dependability of supply of the items as well as the technical know-how require, weighing such requirements for both the short-run and long-run period.
- Compare the cost of making the items with the cost of buying theme.
- Compare the cost of making the with possibly more profitable alternative uses the could be made of the firm/s own facilities if the items are purchased
- Consider differences in the required capital investment and the timing of cash flows.
- Whether it is profitable to make or buy depends upon the circumstances surrounding the individual situation.
The management should present a statement that compares the company’s cost of making the items with the vendor’s price. The budget should also be restated to indicate the effect on total costs and total profit when existing fixed cost are allocated to the additional items.
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