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Hi Sir ,
Which FOUR of the following are to be correctly included in the considerations in a make
or buy decision?
(i) The amount of re-allocated rent costs caused by using the production space
differently.
(ii) The variable costs of purchase from the new supplier.
(iii) The level of discount available from the new supplier.
(iv) The redundancy payments to the supervisor of the product in question.
(v) The saved labour costs of the production staff re-directed to other work.
(vi) The materials no longer bought to manufacture the product.In the above question related to the labor being re directed we could consider that as a cost saving right . Eg If i was producing A and B products and when i choose the decision to buy the A product rather than producing then what ever the labour that had been utilized during the production is saved and this is re transferred to product B . When this happens we could see that due to additional labor there will be additional contribution generated .
I see there is a connection between statement 5 and 6 . Since both are not bought or neither used which creates a cost savings .
Yes you are right
The amount of re-allocated rent costs caused by using the production space differently. This is relevant because if the company decides to make the product in-house, they would need to consider the cost of using the production space that would otherwise be rented out to another company.
The variable costs of purchase from the new supplier. This is important because the cost of purchasing the product from the new supplier will impact the overall cost of production.
The level of discount available from the new supplier. This is a relevant factor as it can affect the cost savings associated with buying the product from the new supplier.
The saved labour costs of the production staff re-directed to other work. This consideration is significant because if the company decides to buy the product instead of making it, they can redirect their production staff to other tasks, potentially saving on labour costs.
The redundancy payments to the supervisor of the product in question are not typically considered in a make or buy decision.
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