Make or Buy Decision

This video shows the optimal way for firms to choose whether to manufacture a product component internally or purchase the component from an external supplier. The key is for managers to focus only on relevant costs-- those costs that differ among alternatives-- when deciding which route incurs a lower cost.
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[@Amicoskates01]

I don't want to come off too strong but I love you

[@abigailgarcia2634]

honestly

[@jaredjohns9302]

Dont we all!

[@itskelohh8173]

Gay

[@jevjake777]

I'm a professional in the procurement area for over 10 years and I have to say that this is on-point.

[@Edspira]

😀

[@somkaranbhardwaj5484]

Idiot it's 80 k not 70 k , u are really dumb

[@johndupell8021]

This account is carrying my managerial grade. thank you.

[@bahatimusuhuke8254]

Total cost is 80,000 not 70,000

[@bobalzano2296]

you helped me pass my online classes. thanks boss

[@adamrobertson2138]

If you add them up, its 80k, not 70k.

[@soudipbhaduri6884]

My Dear Adam it's 70k because 46k and 24k adds to 70k

[@rosevi5770]

its 80k really. 21+15+10=46 then 14+20=34. 46+34 =80

[@wavvydon4076]

Quick maths

[@Danny-lc1lb]

@@wavvydon4076 I'm never hot

[@jordankopal1412]

Hey great video. You explained this to me better then my teacher.

[@FreezelyGaming]

Thank god i found your videos. Online management student in managerial accounting and this is an awakening! Thanks

[@britannilattibeaudiere2634]

Thank you, you've helped me pass accounts

[@tarekalsherif57]

Thank you Michael fo the clear explaination , I think we might also consider the opportunity costs such as losing a CM or use of producton space

[@mealsandfashion]

It was so easy to grasp. Thanks a lot sir

[@wraith1154]

Thanks for the video, helped me. One question though. What about the risk of cost? For example (this only makes your example of internal production look more attractive.) The potential new supplier of the seats has a material delivery issue or has a run of product that does not meet the QC standards of your complany. Don't you have to add a potential cost risk to the analysis?

[@Naba602]

you're a life saver

[@Phantastikal]

Your videos are the best! Thank you!

[@gogomakhoba201]

can we perhaps see the question paper because I understand your videos but when I'm in an exam n I'm looking at the question paper I get confused hey like understanding the structure and key words on a question paper in order to be able to answer it properly..... I love your videos

[@vivianakech4258]

wonderful video.thank you

[@nabeelshahulhameed2451]

how come the machine cost was neglected and not considered

[@RamKumar-yu5eu]

The total of all those costs are 80000 not 70000

[@josephnguuri3941]

Do make use of fixed cost?

[@charliebayer4540]

Thank you!

[@g00gle-]

So sad that you are not doing any content anymore . Thanks for the video .

[@Edspira]

I'll begin posting new content toward the end of this August. My apologies for the delay - I had a big teaching load at my university last semester

[@ranaaurangzeb3097]

God bless you, sir :)

[@kittyind]

Hi Good explanation, wonder how many companies evaluate this way for make or buy? My firm is in similar scenario, however they can buy the product at $40,000 for 5000 only if they buy 25000 units, which is 5 months stock whereby inventory carry cost, pilferage cost is not included.
If you have video about similar scenario where by buy decision is dependent not only on the price but of quantity, could you post it?

[@GoGlamMakeup]

Thank you

[@brianv5666]

great simple video that gets right to it.

[@agirlfromafrica6028]

Does relevant mean avoidable and not avoidable costs?

[@GoGlamMakeup]

May u grow more!

[@sureshwhiteeagle6975]

Sir Any way Depreciation is Non cash Transaction so we defer from including in Relevant cost. Is any situation is there to add Depreciation to relevant cost if it can be avoidable.?

[@africarib]

Depreciation is always irrelevant because it's the result of a purchase made in the past that can't be recovered.

[@sureshwhiteeagle6975]

@@africarib thanks a lot sir

[@Arun-kr9xk]

What if the machine had salvage value

[@AsadAli-gp5cv]

If the machine had salvage value then it would be taken as a relevant Opportunity cost for producing In house.

[@mjay417]

Idk if I trust a video where they got 70k when it’s 80k lol the simplest portion of the tutorial was wrong lol

[@aimua2243]

Love you

[@mrinalsubash8358]

I found a major flaw in your explanation.If the depreciation cost for saddles is taken away,then the case corresponds to 'buy' condition. But,you are summing up the first three and calling it 46000 for the 'manufacturing' condition.Obviously we need depreciation cost for 'make' right? so how can we exclude that and tell 46000

[@cole843]

since depreciation is a sunk cost we will incur the depreciation cost whether or not saddles are made or bought. This makes it irrelevant to the situation.

[@kateturner9258]

We still own the machine whether we use it or not so we can still depreciate the asset.

[@randomname8616]

But you will only buy the machine if you're gonna make the saddles yourself, right? Like if you would buy them from an outside supplier then you wouldn't buy the machine, so it's only a past purchase when you decide to manufacture the machines yourself. So shouldn't the depreciation/year be added to the sum (assuming the annual production stays the same, and that you keep producing them until the machines break, so you take multiple years and then compare)

[@lucaswang9839]

@@randomname8616 i think it being depreciation meaning that you already have the machine, not the decision to whether buy it or not

[@mealsandfashion]

@@randomname8616 the machine for manufacturing the saddles is already there just as the factory itself and it’s machinery for manufacturing the bicycles. So there’s no cost incurred in making since it’s already available.

[@ferdinandfernando4025]

I really love your contents :) Hope you could make more educational videos :)

[@GyanAddict]

Thank you sir.

[@nandninayyar2514]

:)