January 10th, 2018
Making make-or-buy decisions| conclusion
Apart from external reporting, accounting is also involved in generating internal reports that support management decisions. One such front is the use of incremental analysis to help the management make informed short-term business decisions. To exemplify such use the paper focused on the use of incremental analysis to inform on make-or-buy decisions. Through a hypothetical company – luscious creamery – three scenarios have been evaluated: where fixed costs do not change irrespective of the decision taken; where some fixed costs can be eliminated if the outsourcing decision is made; and where the freed capacity after outsourcing is used to further the core business activity (for luscious creamery, processing of milk). The analysis indicates that various factors affect the decision arrived at and only when all relevant costs and aspects are taken into account can the best decision be made.
Platts, K. W. & Canez, P. L. (2002). Make vs. buy decisions: A process incorporating multi-attribute decision-making. International Journal of Production Economics 77, 247-257. Doi: 10.1016/S0925-5273(00)00177-8
Bamber, L. S., Braun, K. W., & Harrison, W. T. (2007). Managerial Accounting. New Jersey: Pearson Prentice Hall.
Horngren, C. T., Harrison, W. T. & Oliver, M. S. (2009). Accounting (8th ed.). New Jersey: Pearson Prentice Hall.