The Cost Analysis for Decision Making project is intended to be a comprehensive evaluation of the key objectives covered throughout this course. It will challenge you to apply your knowledge of cost information when evaluating the decision to make or buy a product. Please use this outline and grading rubric as a guide to completing your course project. It provides specific details of the required elements of the project, and it will be used by your instructor as a grading guide.
Read Integrative Case 4-61, "Make versus Buy," on pages 157 and 158 of the course text. Assume that you are the general manager (Mr. Walsh) faced with this decision. You have identified the following four alternatives available to Liquid Chemical Co.
- Alternative A: It is the status quo. (i.e., Liquid Chemical Co. will continue making the containers and performing maintenance.)
- Alternative B: Liquid Chemical Co. will continue making the containers, but it will outsource the maintenance to Packages, Inc.
- Alternative C: Liquid Chemical Co. will buy containers from Packages, Inc., but it will perform the maintenance.
- Alternative D: It is completely outsourced. Packages, Inc. will make the containers and provide the necessary maintenance.
Your project should include the following items:
- Part (a): Discuss each of the four alternatives outlined above. Identify the relevant costs (including amounts) for each of the four alternatives, and explain why these costs are relevant to the decision. Identify any costs that are not relevant, and explain why they are not relevant. What are the advantages and disadvantages of each alternative? Who benefits and who loses?
- Part (b): Other than the relevant costs identified in Part (a), what additional information would you use when making your decision? Are there financial factors other than those identified in the case study that you would incorporate into your decision? What nonfinancial information would affect your decision?
- Part (c): As the general manager, which alternative would you choose, and why? Support your conclusion with facts and figures, as necessary.