A narrative about the approach to the problem with supporting references
I identify manufacturing costs when buying and making the product in this case study. Then, based on the manufacturing costs, I calculate the differential cost and the differential profit and decide whether to buy or make the product. The process of each calculation is described in as follows.
Firstly, in case of buying the product, subassembly costs are $128,000 ($ 16 × 8,000 Units). Fixed factory overhead applied are $48,000 ($ 6 × 8,000 Units). Through these studies, Total costs are considered to be $176,000 ($128,000 …show more content…
In the incremental differential cost revenue analysis above, quantitative analysis was conducted from the aspect of the manufacturing costs. In addition, it is necessary to consider management and marketing strategy from qualitative aspects as well. Namely, qualitative analysis is critical in addition to quantitative analysis. According to the Globis MBA Accounting (2008, p.155), three methods of low cost, differentiation and concentrated strategy are explained as a method to create a competitive advantage in business. If this company in the case study adopts a low cost strategy, it is essential to reduce the manufacturing costs and set a price that can make profits even at low prices. The price will be determined in light of marketing strategy. In the Globis MBA Marketing (2008, p.13), it is required to develop product, price, place, and promotion strategy called the 4P to achieve marketing objectives. Therefore, based on the numerical data obtained by the incremental differential cost revenue analysis, the company will conduct qualitative examination from the aspect of the 4P strategy in the company's marketing objectives and management strategy, which will be the final decision making as a