Be sold at the new price to ensure the same amount of

Info icon This preview shows pages 168–171. Sign up to view the full content.

be sold at the new price to ensure the same amount of total profits as that of the last year. Solution Profit for 1000 mixies = 100 x 250 = rs.250000 Contribution at the price of Rs.750 = 750 350 = Rs.400 P/V ratio = contribution per unit / sales price per unit = 400 / 750 Sales required at Rs.750 per mixy to earn a profit of Rs,250000 \ = (fired cost + profit)/ P/V ratio = (200000 + 250000) / 400/750 = Rs. 843750 = sales in units = 843750 / 750 = 1125 mixies Or (F.C + profit ) / contribution per unit = 20000 + 250000 / 400 = 1125 mixies 12.3.3 DECISION TO MAKE OR BUY The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or- buy decisions usually arise when a firm that has developed a product or part or significantly modified a product or part is having trouble with current suppliers, or has diminishing capacity or changing demand. Factors that may influence firms to make a product ( suggest these considerations that favor making a part in-house) Cost considerations (less expensive to make the part) Desire to integrate plant operations Productive use of excess plant capacity to help absorb fixed overhead (using existing idle capacity)
Image of page 168

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

162 Need to exert direct control over production and/or quality Better quality control Design secracy is required to protect proprietary technology Unreliable suppliers No competent suppliers Desire to maintain a stable workforce (in periods of declining sales) Quantity too small to interest a supplier Control of lead time, transportation, and warehousing costs Greater assurance of continual supply Provision of a second source Political, social or environmental reasons (union pressure) Emotion (e.g., pride) Factors that may influence firms to buy a part externally include: Lack of expertise Suppliers' research and specialized know-how exceeds that of the buyer cost considerations (less expensive to buy the item) Small-volume requirements Limited production facilities or insufficient capacity Desire to maintain a multiple-source policy Indirect managerial control considerations Procurement and inventory considerations Brand preference Item not essential to the firm's strategy Illustration 8 XYZ limited has acquired a machine at a cost of Rs.250000. The estimated operating costs for each year of the working life of the machine and its estimated sale value ( scrap) at the end of each year are given below: Year Operating cost in Rs. Scrap value at the end of the year 1 100000 130000 2 120000 80000 3 150000 60000 4 180000 30000 5 220000 10000 If the price of a new machine is always Rs.2 lakhs, when will it be advantageous to replace the machine after the first year?
Image of page 169
163 Solution year Differential operating costs Rs.
Image of page 170

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Image of page 171
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern