- December 20, 2021 at 9:14 am #644582maria2020Member
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In chapter 9 eg 3 on make and buy decisions.
Since the variable cost of making the product is less than purchasing them from outside we would see the saving cost of making them internally on a per kg basis to see how much cost we saved per kg by making them.
Variable cost to make———10——12——14
saving cost by making———3——–5——–2
kilo per unit———————–3——–2——–1
saving cost by kg————–$1—–$2.5——$2
However, if the variable cost of making the product is more than purchasing them from outside we would see the saving cost of purchasing from outside on a per kg basis to see how much cost we saved per kg by purchasing them.
Variable cost to make———20——18——15
saving cost by purchase——5——–8——–6
kilo per unit———————–2——–3——–1
saving cost by kg————-$2.5—-$2.6—–$6
Is that correct? we can do it both ways depending which way we save more cost?December 20, 2021 at 2:51 pm #644612John MoffatKeymaster
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Yes, you can do it either way in principle, but your second example is too extreme because they would not make any in-house but would buy them all externally!!
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