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make or buy

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › make or buy

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • April 2, 2017 at 5:21 pm #379907
    adarsh1997
    Participant
    • Topics: 646
    • Replies: 282
    • ☆☆☆☆

    Hi!

    I actually do have watched your lectures but still has some issues concerning make or buy.

    When we need to decide whether we should make in house or sub-contract production, we should compare the marginal cost of making v/s the marginal cost of buying externally.

    However if we have some specific fixed cost, what should we do?

    1. Should we only compare the variable cost of making to the variable cost of buying OR
    2. Should we compare the (variable cost + specific fixed cost) of making to the variable cost of buying?

    Thanks.

    April 3, 2017 at 6:56 am #379963
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    If there is a specific fixed cost then this will be saved if we sub-contract instead of making in-house. So you compare the saved fixed cost with the extra marginal cost of sub-contracting.

    April 22, 2017 at 12:01 pm #383074
    adarsh1997
    Participant
    • Topics: 646
    • Replies: 282
    • ☆☆☆☆

    Therefore, the rule is that we compare the variable cost+ specific fixed cost of making with the marginal cost of buying.

    Thanks.

    April 22, 2017 at 4:21 pm #383098
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    Yes – although be careful about just learning rules. The examiner is very clever at putting ‘tricks’ in questions to test that you understand as opposed to having just learned rules.

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