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1. What is a typical reason for doing a Make versus Buy analysis?
To determine if your product is competitively priced in the market.
To determine if the product cost can be lowered by switching the manufacturing approach from “make” to “buy” or vice versa.
To determine whether a company should build a new production facility or buy a competitor.
2. Why should you use variable cost instead of standard cost in a Make versus Buy analysis?
If the manufacturing approach for a product is switched from “make” to “buy” the only costs that will be eliminated are the variable costs. The fixed cost component of standard cost is not eliminated.
Variable cost is a smaller number than standard cost and the goal is to lower the cost as much as possible.
Variable cost refers to cost of doing production in-house and standard costs are those costs quoted by suppliers.
3. Which of these is the best description of the Make versus Buy decision process?
A strategic investment process to determine whether to invest in new manufacturing process equipment.
A manufacturing process to determine the most efficient option for manufacturing a product or portion of a product.
A cross-functional process to determine the lowest total cost option for manufacturing a product or portion of a product.
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