Managerial Accounting Challenge: The Make-or-Buy Decision Scenario: A manufacturing company is currently producing a component for its main product. The variable cost per unit of the component is $20. A supplier has offered to sell the component to the company for $25 per unit. The company's fixed costs associated with producing the component are $100,000 per year. Questions: 1. Relevant Costs: Identify the relevant costs for the make-or-buy decision. 2. Incremental Analysis: Conduct an incremental analysis to compare the costs of making the component versus buying it. 3. Opportunity Cost: If the company decides to make the component, what is the opportunity cost of not using the freed-up capacity for other purposes? 4. Qualitative Factors: Consider any qualitative factors that may influence the make-or- buy decision, such as quality control, supplier reliability, and potential for future cost savings. 5. Sensitivity Analysis: Conduct a sensitivity analysis to assess the impact of different variable cost scenarios on the make-or-buy decision. 6. Strategic Implications: Evaluate the strategic implications of making or buying the component, such as its potential impact on the company's vertical integration strategy and supply chain management. 7. Outsourcing Risks: Identify the potential risks associated with outsourcing the component production and develop strategies to mitigate these risks. 8. Negotiation: Consider strategies for negotiating a better price with the supplier. 9. Internal Capacity: Evaluate the company's internal capacity and the potential for improving efficiency and reducing costs. 10. Supplier Evaluation: Develop criteria for evaluating potential suppliers and select the best supplier if the company decides to outsource. 11. Long-Term Costs: Consider the long-term cost implications of making or buying the component, such as potential changes in demand, technology, or supplier relationships. 12. Ethical Considerations: Evaluate any ethical considerations associated with the make- or-buy decision, such as the potential impact on employees and the local community. 13. Data Analytics: How can data analytics be used to identify trends, patterns, and anomalies in production costs and supplier performance? 14. Future Trends: Consider any future trends in the industry that may impact the make-or- buy decision. 15. Risk Management: Develop a risk management plan to address the potential risks associated with the make-or-buy decision.