SUBJECT: SUBJECT: Cost TOPIC: Make
Accounting
or Buy Decision
SUBMITTED BY:
Khushboo shah Dimple shah Urvi Gala 47 44 13
INTRODUCTION
y y y y
What is making? What is buying? What is make ² or ² buy decision? Classification : M items, B items and N items
WHY GO OUTSOURCING?
(REASONS TO BUY)
y y
Lack of expertise. Less expensive to buy the items then to produce it.
y y y
Concentration on its own specialization. Small- volume requirements. Limited production facility or insufficient capacity.
Example2 : Make ² Or ² Buy Decision
Particulars Vendor Material cost Operation cost Manufacturing overheads Fixed overheads Sales expenses Purchase expenses Cost of the item Profit margin Forwarding & dispatching charges Total expenses 25 7 3 4 2 0 41 4.5 2 47.5 Expenses Buyer 23 8 4 7 0 3 45 0 0 45
WHY FAVOR IN-HOUSE? IN(REASONS TO MAKE)
y y y y y y
Unreliable suppliers Transportation Cost Use of idle capacity and resources Better quality control Too small quantity Less expensive to make a item than to purchase it
Example1 : Make ² Or ² Buy Decision
Per Unit Make Purchase price Direct materials Direct labor Variable overhead Fixed overhead Total cost Difference in favor of making 5 Buy 16 Total of 8000 units Make Buy 1,28,000
40,000
4 4 2 15 1 16
32,000 32,000 16,000 1,20,000 8,000 1,28,000
y
Make ² or ² buy alternatives : idle, rent out , other products
EXAMPLE OF COMPANY GOING FOR OUTSOURCING
y y
IT processes-IBM, network operations-Ericsson, Siemens ,Alcatel Lucent
MAKE OR BUY- PROCESS
doc_689227071.pptx
Accounting
or Buy Decision
SUBMITTED BY:
Khushboo shah Dimple shah Urvi Gala 47 44 13
INTRODUCTION
y y y y
What is making? What is buying? What is make ² or ² buy decision? Classification : M items, B items and N items
WHY GO OUTSOURCING?
(REASONS TO BUY)
y y
Lack of expertise. Less expensive to buy the items then to produce it.
y y y
Concentration on its own specialization. Small- volume requirements. Limited production facility or insufficient capacity.
Example2 : Make ² Or ² Buy Decision
Particulars Vendor Material cost Operation cost Manufacturing overheads Fixed overheads Sales expenses Purchase expenses Cost of the item Profit margin Forwarding & dispatching charges Total expenses 25 7 3 4 2 0 41 4.5 2 47.5 Expenses Buyer 23 8 4 7 0 3 45 0 0 45
WHY FAVOR IN-HOUSE? IN(REASONS TO MAKE)
y y y y y y
Unreliable suppliers Transportation Cost Use of idle capacity and resources Better quality control Too small quantity Less expensive to make a item than to purchase it
Example1 : Make ² Or ² Buy Decision
Per Unit Make Purchase price Direct materials Direct labor Variable overhead Fixed overhead Total cost Difference in favor of making 5 Buy 16 Total of 8000 units Make Buy 1,28,000
40,000
4 4 2 15 1 16
32,000 32,000 16,000 1,20,000 8,000 1,28,000
y
Make ² or ² buy alternatives : idle, rent out , other products
EXAMPLE OF COMPANY GOING FOR OUTSOURCING
y y
IT processes-IBM, network operations-Ericsson, Siemens ,Alcatel Lucent
MAKE OR BUY- PROCESS
doc_689227071.pptx