Financial Analysis: Make or Buy Decision Report for Play Dough Company

This report analyzes the make or buy decision for Play Dough Company, focusing on the financial implications of manufacturing coffee cups versus purchasing them from an external supplier. The analysis includes a detailed cost breakdown, calculating direct materials, direct labor, variable overhead, and relevant fixed overhead to determine the total cost per unit and overall profitability. The report compares the potential profit from both scenarios, highlighting that manufacturing the coffee cups would yield a higher profit compared to buying canisters. Additionally, the report discusses various factors influencing the make or buy decision, such as production volume, capacity utilization, manpower availability, vendor reliability, technological aspects, and strategic considerations. This comprehensive analysis provides valuable insights into the factors that influence a company's choice between manufacturing a product in-house or outsourcing its production.

Running Head: Management Accounting
1
Project Report: Management Accounting

Management Accounting
2
Que e)
If Play Dough Company would manufacture the coffee cups than the following cost
could be occurred:
Direct Material
$
0.60
Direct labour
$
0.20
Variable overhead
$
0.10
Fixed overhead
$
0.15
Further, the sales price and the units of the coffee cups are given below:
Sales units 400000
Selling Price
$
1.20
Through the given information, it has been found that is the company would
manufacture the coffee cups than the following cost would be occurred:
Per
unit Total
Purchase price
Direct Material
$
0.60
$
2,40,000.00
Direct Labour
$
0.20
$
80,000.00
Variable OH
$
0.10
$
40,000.00
relevant Fixed OH
$
0.15
$
60,000.00
Total Relevant cost 1.05
$
4,20,000.00
Further, it has been found that if the company would manufacture than the following
profit would be earned by the company:
Calculation of Total profit
Per unit Total

Management Accounting
3
Total Revenue $ 1.20
$
4,80,000.00
Total cost $ 1.05
$
4,20,000.00
Profit $ 0.15
$
60,000.00
Whereas if the company would be bought canisters from the canister company than
the total profit of the company would be $ 53200 and if the canisters would be manufactured
by the company than the total profit of the company would be less. At the same time, in
above case the profit of the company would be $60000. So company must go for the new
proposal as this would offer the highest profit to the company.
Que f)
Manufacture the product or buy the product from suppliers is a huge decision. This
decision is affected through many factors such as capacity of the plant, economical condition,
production, demand and supply of the product etc. these factors affect the decision of the
buying or manufacturing decision of the company. Some of the factors are below which
affects the make or buy decision of a company:
 Volume of production
 Utilization of production capacity
 Availability of manpower
 Integration of production capacity
 Quality and reliability of vendors
 Protection of patent right
 Technological aspects
 Strategic aspects etc.