Make or Buy 2 - Make or buy PDF

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Make or buy...

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Written Assignment Unit 4 – BUS 5110 15th July, 2020 Make or Buy Decision

Introduction

In this assignment, we’ve been tasked to describe the circumstances of a vacuum manufacturing

company and recommend a course of action. Data has been provided to make these calculations.

Figure 1

Above is a figure with calculated make and Buy figures.

Purchase from outside - 3,000,000 (50,000units by $60 -service charge per unit)

Cost of making in house Direct material 75,000 x 12 = 900,000 Direct Labour 100,000 x 12 = 1,200,000 Variable Factory Overhead = 7.5 x 50,000 = 375,000 Fixed factory overhead (avoidable) 25% of 1,800,000 = 450,000

The reason the 75% wasn’t added is because whether you want to buy or make the engine in house it is still going to be incurred so it’s not relevant for this.

Total Cost of Making In house= 2,925,000 (Addition of every figure under cost of making in house)

The difference between the Make and Buy is $75,000. So the company should make the engine as they would be saving $75000 rather than spend it if they should buy.

The “make-or-buy decision requires thorough analysis from all angles. Quantitative factors to consider may include things such as the availability of production facilities, production capacity, and required resources. They may also include fixed and variable costs that can be determined with certainty or estimated” (Strategic CFO, n. d.). All these factors have been considered as they all fall under cost, which when the company makes the engine, it’s going to save $75,000

References Strategic CFO. (n. d.). Make-or-Buy Business Decision. Retrieved from https://www.google.com/amp/s/strategiccfo.com/make-or-buybusiness-decision/amp/...