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Dear John,I hope you are alright. I jsut completed the MAke or buy decision topic and i had a bit confusion between words, So, just to clarify.
using the same example- where Y= most cost saving/per kg product , Z = second best and X= third.
and Its a bit confusing . Like X variable cost to make is 10 usd but buying cost is13 usd and selling price is 12. do we consider the saving = 1 usd or 2 usd. i mean we do save 2 usd by buying but just to suffer loss of 1 usd.
2) simply we look here which is most cost efficient or which is more profitable. If sales price of each given should we consider the S.P to find which one if more profitable Or just always stick to the methord- Finding saving per kg and making the highest cost saving product whether its less profitable selling-price-wise
P.S – understood the 1) one , we just don’t do any X if the not the best choice and its loss making if we buy it.
but still little worried about second one. if Y saves most and the first choice according to saving per kg BUT sold at lower price.
where as Z which is second best choice BUT have a high selling price.
sounds like Key factor analysis when selling price is inlcuded finding contribution and divising by limited resouse per unit. so we solve it like key factor analysis if S.P is given. right ?
Thank you , such short discussion and asking clears all the doubt and calms my mind
The sales price is not usually going to be relevant because it will be the same whether we make the product ourselves or buy it from outside. It is the difference in the cost that is going to be relevant.
i was just revising the chapter , I was reading the terminologies at start of page and I got doubt , if labour is variable cost or fixed. Its true in short term is fixed and in long term its variable more often than not. But with exam point of view, In questions where the cost card is given and for other questions purpose, should i consider it as variable ?
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