1. Business Decision; that compares the costs and benefits of manufacturing a product or product component against purchasing it. If the purchase price is higher than what it would cost the manufacturer to make it, or if the manufacturer has excess capacity that could be used for that product, or the manufacturer's suppliers are unreliable, then the manufacturer may choose to make the product. This assumes the manufacturer has the skills and equipment necessary, access to raw materials, and the ability to meet its own product standards. A company who chooses to make rather than buy is at risk of losing alternative sources, design flexibility, and access to technological innovations. Determination whether to produce a component part internally or to buy it from an outside supplier. This decision involves both qualitative and quantitative factors. Qualitative considerations include product quality and the necessity for long-run. Business relationships with subcontractors. Quantitative factors deal with cost. The quantitative effects of the make-or-buy decision are best seen through the relevant cost approach. 2. They Budget for many reasons; to control spending, to set goals, to control the direction of the company, and to run effectively.
Controlling spending is an obvious reason.
Setting goals is another. For instance, if x department meets a goal, they may get a budget increase (which can lead to an increase in wages for that department). Allocating monies to a department makes that department want to be more efficient with their money.
Budget managers can control the direction of the company by giving or not giving money to certain parts of the company. For instance, in an oil company, a budget manager might give a lot of money to the Exploration department to find new oil, but cut back on the Logistics department.
Budgeting is a great way to both force a company to run efficiently and to find out if they are actually doing it....