Which decision involves determining whether to produce a product internally or purchase it from an external supplier?

The decision that involves determining whether to produce a product internally or purchase it from an external supplier is known as the "make or buy decision." This choice is critical as it impacts the company's overall cost structure, resource allocation, and operational efficiency.

When businesses face this decision, they must analyze various factors, including production costs, quality control, capacity constraints, and potential supplier reliability. If producing the item in-house incurs lower costs and aligns with the company’s strategic goals, the company will opt to "make" the product. Conversely, if an external supplier can produce the item at a more favorable cost or with higher quality, the company may choose to "buy" it instead.

This decision is fundamental to cost management and supply chain efficiency, as it directly influences profitability and operational effectiveness.

In contrast, transfer pricing typically relates to the pricing of goods and services sold between subsidiaries within the same company, focusing on tax implications and profit distribution rather than the make-or-buy decision itself. A special order decision usually deals with determining whether to accept a one-time order at a discounted price, which doesn't consider the broader context of make or buy. Variance analysis involves examining the differences between planned and actual performance, focusing more on budgeting and financial performance rather than