Management is often faced with situations whereby products which are manufactured within the organization have higher manufacturing costs compared to that which would have been paid for if the products were bought in an open market. However, a decision to discontinue manufacture in favour of buying cannot be made simply by comparing internal costs with external buying prices. Explain four factors which the management should take into consideration when making such a decision.

Management Accounting Block Revision Mock Exams

Explain four factors that management should take into consideration when making such a decision
(i) Whether there are alternative products which can be produced and their contribution
(ii) Whether we can be able to increase the sales of remaining product due to dropping of one product

(iii) Will the prices of the products go up or not in future?
(iv) Whether the quality of the products is good

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