BU275 Study Guide - Final Guide: Fixed Cost, Startup Company, Flowchart
Document Summary
Process planning determines how a firm will produce a product or provide a service. A firm that sells the product, assembles the product, makes all the parts, and extracts the raw material is completely vertical integration (the degree to which a firm produces the parts that go into its products. The outsourcing decision rests on an evaluation of the following factors: The cost of buying the item from a supplier includes the purchase price, transportation costs, and various tariffs, taxes, and fees. The cost of coordinating production over long distances and increased inventory levels should also be considered. The cost of making the item includes labour, material, and overhead. Companies that are operating at less than full capacity may elect to make components rather than buy them, especially if maintaining a level workforce is important. Sometimes the available capacity is not sufficient to make all the components, so choices have to be made.
