ACTG2020_Week5 2014 Ch12CMD (1)

Expenses 30000 30000 total fixed expenses 400000

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Unformatted text preview: oss $ (100,000) $ (140,000) Difference $ (500,000) 120,000 5,000 75,000 200,000 (300,000) 90,000 100,000 70,000 260,000 $ (40,000) LO 2 Beware of Allocated Fixed Costs Why should we keep the digital Why watch segment when it’s showing a $100,000 loss? $100,000 loss The answer lies in the The way we allocate common fixed costs to common our products. our Our allocations Our can make a segment look less profitable than it profitable really is. really LO 2 The Make or Buy Decision When a company is involved in more than one activity in the entire value chain, it is vertically integrated. A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier is called a “make or buy” decision. LO 2 Vertical Integration Advantages Smoother flow of parts and materials Better quality control Disadvantages Companies may fail to take advantage of suppliers who can create economies of scale advantage by pooling demand from numerous companies. Realize profits LO 2 The Make or Buy Decision: An Example Essex Company manufa...
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