![Make/Buy Relevant quantitative factors make variable manufacturing costs variable selling/admin costs fixed costs buy purchase price acquisition costs unavoidable fixed costs benefits from freed-up resources: rent revenue or contribution from other products Four Solution steps 1. Using past or budgeted data, separate manufacturing costs into variable (VC) and fixed (FC). For make: total VC = VC × budgeted volume 2. Separate fixed costs into unavoidable and avoidable based on additional information supplied. For make: FC = FC; for buy: FC = unavoidable FC 3. Find the purchase price. For buy: purchase cost = purch price × budgeted vol 4. Use the information supplied on use of available resources. For buy, as an offset to other costs. Indifference Analysis ,[object Object]](https://image.slidesharecdn.com/examreview-110404114103-phpapp02/85/Exam-review-1-320.jpg)
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Exam review
- 4. compute the present value of all future cash flows
- 5. Table 1 – PV of $1
- 6. Table 2 – PV of annuity of $1
- 7. compute the NPV = PV (future cash flows) – initial investment
- 8. NPV > 0 accept project
- 13. ignores cash flows beyond the payback period