Question

Maple Company is trying to decide whether to manufacture a component or to buy the component from a supplier. Which of the following is irrelevant with respect to this decision? Selected Answer: other uses of the facilities currently used to manufacture the component Answers: the quality of the component purchased from the supplier the supplier's ability to deliver the component on time other uses of the facilities currently used to manufacture the component the fixed manufacturing costs which will remain if the component is outsourced

Answer 1

Maple Company is trying to decide whether to manufacture a component or to buy the component from a supplier. Which of the following is irrelevant with respect to this decision:

Following points are most important to take decision :

1. Cost – We should consider only direct cost in compilation of the Internal cost to manufacture a Product in house ( In Build house/ Manufacturing) . This amount should be compared to pric of a supplier
2. Capacity – Need to understand whether Company have sufficient capacity to produce the product manufacture Or Supplier will be reliable enough to be able to produce the goods in proper quantities and timely manner
3. Expertise – Need to understand whether Company having expertise to complete in house job or will they opt for outsourcing
4. Invested Fund – Need to understand whether company having enough fund to Invest for in house manufacturing . We need to ensure that company instead of blocking fund , they can go for outsourcing the job and use this fund for any other purpose
5. Strategic Importance –If Product is very important the it could be make more sense to manufacture in house , in order to maintain proper control over it
6. Drop shipping Option - Shipping option approach shifts the burden of Investing n Inventory to the supplier , which can represents substantial reduction in Working capital