Make or Buy Decision

The assignment discusses the make or buy decision, which involves selecting between manufacturing a product or purchasing it from an external supplier. The decision is influenced by factors such as quality, quantity, convenience, and marketing. For Playdough Company, making canisters in-house could provide better quality, but purchasing from a vendor might be more convenient if there's no high demand. The company should consider its current capacity, effective quality control, and proprietary technology when deciding whether to manufacture or purchase the product.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
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Answer to Question f:
The decision regarding whether a business needs to manufacture or purchase a product
depends on both tangible and intangible factors, which might change with the passage of time.
Manufacturing the products in-house might help in saving money and time. However, it is
convenient as well to purchase from a vendor specialising in the particular item. Moreover,
making a product from the initial stage could be a method of providing additional work for the
valued staffs during the slowdown of the business.
A make or buy decision is the act of selecting between making a product or purchasing
the same from an external supplier. In make or buy decision, the most significant factors to be
taken into account include portion of quantitative evaluation like the related production cost and
whether the organisation has the capacity to manufacture at the needed levels. It is referred as the
decision of outsourcing, as it contrasts the benefits and costs related to production of a particular
product or service internally to the benefits and costs associated with hiring an external supplier
for the questionable resources. In order to contrast the costs rightfully, each aspect about the
acquisition and item storage needs to be taken into consideration.
The primary factors to be considered in deciding whether to manufacture the canisters or
buy the same from the outside supplier include the following:
Quality:
If Playdough Company could develop a product, which is better in contrast to purchasing
from a vendor, it is necessary to make the canisters in-house. It is assumed that the organisation
could charge a greater price in justifying labour and materials. However, if the organisation fails

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to specialise in canisters, a specialist vendor would be highly effective. Since Playdough
Company is involved in making value-added canisters, it could provide greater quality by
making raw materials from the beginning, as they would be fresh optimally.
Quantity:
The product volume that the organisation requires would affect the decision of whether to
manufacture or purchase the same. For instance, if Playdough Company needs a box of canisters,
it is impractical to fashion the same from the initial stage. However, sometimes a huge demand
in the market could be a cause of not to make an in-house product. In case, the organisation uses
10,000 boxes for packaging products, it could be considered as cost-effective to contract to a
third party firm foe making them to a custom size (Fullerton, Kennedy and Widener 2013).
Convenience:
When Playdough Company has been operating in high gear to meet the current demand,
it would be highly feasible to make the products, instead of purchasing the same. However, if the
vendor of the organisation that manufactures the product belongs to a cross-border nation and it
could not dispatch the needed items on short notice, it is feasible to manufacture the product in-
house. The convenience of purchasing or making products might change in relation to the overall
sales volume that the organisation is presently transacting along with the amount of additional
space and labour of the same.
Marketing:
In the words of Otley and Emmanuel (2013), making in-house products is a significant
strategy of marketing. For instance, in case of clothing store making and selling its own dress

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line provides the customers with an added value and a strong brand. Similar is in the case of a
restaurant making its own sauces and dressings, which provide unique flavours. In case of
Playdough Company, making canisters could add additional features to the product. However,
the discriminating and savvy customers often concentrate on whether the organisation has made
or purchase the products it sells. Hence, Playdough Company could develop its own inventory
for building an educated and loyal client base.
Thus, based on the above discussion, it could be stated that the factors affecting the
decision of Playdough Company to purchase canisters instead of producing them in-house
comprise of lack of internal expertise, small requirements of volume, desire for varied sourcing
and the fact that the item might be crucial to the strategy to the organisation. Excessive
consideration might be provided, if the organisation obtains the opportunity to work with a firm
providing outsourcing services successfully in the market to develop a long-term association. In
a similar fashion, the influential dynamics towards manufacturing an item include the current
capacity of production, effective quality control and proprietary technology needing protection.
Finally, it is necessary for the firm to consider whether the supplier could seek for long-term
arrangement, if necessary during high demand situations.

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References:
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1),
pp.50-71.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.