Question

Assume you own a company that produces clothing products such as shirts and shorts. Your company has manufactured clothing products locally in the United States for over 30 years. Because low cost competition is increasingly gaining market share and your company costs are relatively high, you are considering outsourcing production to China.

1. Describe how differential analysis can be used to assist in making this type of make-or-buy decision. Include specific examples in your response.

2. What additional factors would you consider outside of the financial information analyzed with differential analysis? These are called qualitative factors in the text. Be sure to state why you would consider the qualitative factors included in your response.

Answer 1

Answer (1):

Differential analysis can be utilized in the dynamic of make or purchase by contrasting the different significant expenses under both the other options. The elective that has lower significant expenses might be then picked. On account of redistributing the creation of shirts to China, the different pertinent costs that will affect the dynamic are the buying expenses of the shirts vi-s-vis the expenses of delivering the shirts, for example, the immediate materials, direct work, fabricating overheads and whatever other selling and managerial costs that are acquired explicitly for the shirts. In the event that the price tag offered by the provider is lower than the expenses of making the shirts, at that point the alternative of redistributing might be considered.

Answer (2):

Other than the money related ramifications referenced over, certain other subjective factors likewise should be considered while settling eager for advancement or purchase choice. The nature of the shirts delivered and those bought must be considered alongside the expenses. Additionally, the trustworthiness of the provider to convey according to the necessary calendar is a significant factor in the dynamic.