Answer:
Make or buy decision: This is a strategy of deciding whether to manufacture a product internally or to buy the product from external source is known as make or buy decision.
Savings to make rather than to buy:
Savings to make rather than to buy is the difference between the purchase price and the variable cost of making the part.
Hence, the savings to make rather than to buy is
.
Answer:
Relevant cost analysis: Relevant costs are the costs that differ with choices. The analysis of such relevant costs for decision making of either to choose the option or to go for other option is known as relevant cost analysis.
Presence of one production constraint:
As there is no other production constraint, it is advised only to produce only one product for the maximization of the profits of the entity. This results in a good contribution margin.
Presence of two or more production constraints:
As there are two or more production constraints, the best product mix that maximize the income is to be identified and chosen. The decision of best product mix is based on graphical presentation or any mathematical techiniques.
Answer:
Relevant costs are future costs. These costs make a change in selecting amid the options accessible for the particular decision. They can be both variables or fixed. Mostly the variable costs are relevant as they are diverse for every option and are committed.
The strategic factor that affects the relevant cost analysis are as follows:
1. The relevant cost focus on financial factors and the strategic cost analysis focuses on the customer.
2. There is no link in the relevant cost and the strategy. But in strategic cost analysis, the strategy is linked with the firm's strategy.
3. The strategic cost analysis is comprehensive and independent but the relevant cost analysis is detailed and quantifiable.
4. The focus for relevant cost analysis is short term in comparison to the strategic cost analysis.