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  • Upstream: Food Factory / Bakery Outbound Warehouse

    Uploaded by

    Mahboob Alam Rizvi
    7 views3 pages
    1. The document describes a supply chain network for a food manufacturing company. Raw materials are sourced from suppliers and stored in warehouses before being processed in a flour mill, bakery, and packaging factory and distributed to customers. 2. It compares the costs of making vs buying 1000 bearings. Making them costs Tk 14,000 total while buying costs Tk 23,000, so making is preferred to save Tk 9,000. 3. Depreciation is considered an irrelevant cost for make vs buy decisions as it is a non-cash expense that does not impact cash flows. It only becomes relevant if the supplier includes depreciation in their product price.

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    Class Test.

    Original Title

    Class Test

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    1. The document describes a supply chain network for a food manufacturing company. Raw materials are sourced from suppliers and stored in warehouses before being processed in a flour mill, bakery, and packaging factory and distributed to customers. 2. It compares the costs of making vs buying 1000 bearings. Making them costs Tk 14,000 total while buying costs Tk 23,000, so making is preferred to save Tk 9,000. 3. Depreciation is considered an irrelevant cost for make vs buy decisions as it is a non-cash expense that does not impact cash flows. It only becomes relevant if the supplier includes depreciation in their product price.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    7 views3 pages

    Upstream: Food Factory / Bakery Outbound Warehouse

    Uploaded by

    Mahboob Alam Rizvi
    1. The document describes a supply chain network for a food manufacturing company. Raw materials are sourced from suppliers and stored in warehouses before being processed in a flour mill, bakery, and packaging factory and distributed to customers. 2. It compares the costs of making vs buying 1000 bearings. Making them costs Tk 14,000 total while buying costs Tk 23,000, so making is preferred to save Tk 9,000. 3. Depreciation is considered an irrelevant cost for make vs buy decisions as it is a non-cash expense that does not impact cash flows. It only becomes relevant if the supplier includes depreciation in their product price.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 3

    1.

    Supply Chain Network Design

    Suppliers Poly & Packaging


    XYZ,
    of Sugar, Paper Factory
    Rajshahi.
    Butter,
    Wheat Nut
    ABC, Rajshahi Warehouse,
    Bogura.
    Upstream
    QMS,
    Rajshahi
    Inbound Wheat Flour Mill,
    Warehouse, Gazipur
    Gazipur Flour
    Operation
    All Raw
    materials

    Finished
    Food Factory Packed Outbound
    / Bakery Goods Warehouse
    Downstream

    D1 D2 D3 D4 D5 D6 D7
    2. Make or Buy Decision
    If we purchase the 1000 pcs of Bearings, from the third party then the calculation should be like the following:

    Direct Materials Tk.6 x 1000 = 6000/=


    Direct Labor Tk.4 x 1000 = 4000/=
    Supervisor Salary Tk.3 x 1000 = 3000/=
    Variable Overhead Tk.1 x 1000 = 1000/=
    Allocated general overhead Tk.5 x 1000 = 5000/=
    Depreciation of general equipment Tk.2 x 1000 = 2000/=
    Depreciation of special equipment Tk.2 x 1000 = 2000/=

    Total Expense Tk.23 x 1000 = 23,000/=

    If we produce the bearings the production cost should be as following:


    Direct Materials Tk.6 x 1000 = 6000/=
    Direct Labor Tk.4 x 1000 = 4000/=
    Supervisor Salary Tk.3 x 1000 = 3000/=
    Variable Overhead Tk.1 x 1000 = 1000/=
    Allocated general overhead Not Relevant
    Depreciation of general equipment Not Relevant
    Depreciation of special equipment Not Relevant

    Total Expense Tk.14 x 1000 = 14,000/=

    The difference between purchasing & Producing cost is= (23000-14000) = 9000/=

    So as per given information I will prefer to produce the Bearings instead of Buying from third party.
    3. Depreciation: Relevant or irrelevant Cost.
    As per financial Statement, Depreciation is a non-cash item. Since it does not impact on cash flows, non-cash items are
    frequently categorized as irrelevant costs for management decisions. Though a fixed asset is already purchased from the
    supplier that means the cost of fixed asset purchase is already done for the certain time, so the Depreciation cost is
    irrelevant for the make or buy decision.
    The Depreciation will become the relevant when we will take the decision for buying something from any
    vendor/supplier, instead of producing the product. If the supplier/Vendor includes the Depreciation cost in the Product
    price, then we should ignore the Depreciation cost to reduce the product price. In this situation the Depreciation Cost is
    relevant to make the decision.

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