A Manufacturing Company Needs to Know Whether to Make In-House

question 66

Essay

A manufacturing company needs to know whether to make in-house or buy a roller gear assembly for its new fax machine production.The company expects to produce 9,000 units per year.The following estimates have been made:

a.What is the annual cost to make the roller gear assembly in-house?
b.What is the annual cost to buy the roller gear assembly?
c.At what volume are they indifferent regarding the decision to make or buy?

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Definitions:

Controlled

In a business context, it refers to the ability to direct the management and policies of a company through ownership, contract, or influence.

Recognition Criteria

The specific conditions that must be met for a particular element (asset, liability, income, or expense) to be recognized on the financial statements.

Financial Statements

Formal records of the financial activities and position of a business, institution, or individual, typically comprising the balance sheet, income statement, and cash flow statement.

Exchange of Assets

A transaction where companies swap ownership of assets without the use of cash, often to achieve operational efficiencies or strategic objectives.