IB Business Management Topic 5.6.5 Cost to Buy (CTB) Vs. Cost to Make Revision Notes (HL)

IB Business Management Topic 5.6.5 Cost to Buy (CTB) Vs. Cost to Make Revision Notes (HL) | RevisionDojo

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Evaluating Production Decisions: Cost to Buy (CTB) vs. Cost to Make (CTM)

As an owner of a coffee shop you'd need to decide whether to bake your own pastries or buy it from a supplier.
This decision hinges on comparing the Cost to Buy (CTB) and the Cost to Make (CTM).
By understanding these costs, you can make informed choices that impact profitability, quality, and operational flexibility.

Cost to Buy (CTB): What Does It Include?

Definition

Cost to Buy (CTB)

The total expense incurred when purchasing goods or services from an external supplier.

Components of CTB

Supplier Costs: The price paid to the supplier for the product or service.
Transportation Costs: Expenses related to shipping, handling, and delivery.
Quality Control Costs: Inspections, testing, and potential rework if the purchased goods don’t meet standards.

Example

A coffee shop buying pastries from a supplier would include the cost per pastry, delivery fees, and any expenses related to checking the pastry's quality.

Advantages of Buying

Simplicity: Reduces the complexity of operations.
Focus: Allows the business to concentrate on core activities.
Scalability: Easier to adjust supply based on demand.

Disadvantages of Buying

Less Control: Limited influence over quality and production timelines.
Dependency: Reliance on suppliers can lead to disruptions.
Potentially Higher Costs: Suppliers may charge a premium for their services.

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Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

Duis aute irure dolor in reprehenderit

Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Nemo enim ipsam voluptatem quia voluptas sit aspernatur aut odit aut fugit, sed quia consequuntur magni dolores eos qui ratione voluptatem sequi nesciunt. Neque porro quisquam est, qui dolorem ipsum quia dolor sit amet, consectetur, adipisci velit.

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

Unlock the rest of this chapter with a free account

Evaluating Production Decisions: Cost to Buy (CTB) vs. Cost to Make (CTM)

As an owner of a coffee shop you'd need to decide whether to bake your own pastries or buy it from a supplier.
This decision hinges on comparing the Cost to Buy (CTB) and the Cost to Make (CTM).
By understanding these costs, you can make informed choices that impact profitability, quality, and operational flexibility.

Cost to Buy (CTB): What Does It Include?

Definition

Cost to Buy (CTB)

The total expense incurred when purchasing goods or services from an external supplier.

Components of CTB

Supplier Costs: The price paid to the supplier for the product or service.
Transportation Costs: Expenses related to shipping, handling, and delivery.
Quality Control Costs: Inspections, testing, and potential rework if the purchased goods don’t meet standards.

Example

A coffee shop buying pastries from a supplier would include the cost per pastry, delivery fees, and any expenses related to checking the pastry's quality.

Advantages of Buying

Simplicity: Reduces the complexity of operations.
Focus: Allows the business to concentrate on core activities.
Scalability: Easier to adjust supply based on demand.

Disadvantages of Buying

Less Control: Limited influence over quality and production timelines.
Dependency: Reliance on suppliers can lead to disruptions.
Potentially Higher Costs: Suppliers may charge a premium for their services.

Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

Unit 1: Introduction to Business Management - Core operational components and business functions6 subtopics

Unit 2: HR Management - Motivation, Structure, Hierarchy7 subtopics

Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents9 subtopics

Unit 4: Marketing Management - The 7 P's, strategies and forecasting6 subtopics

Unit 5: Operations Management - Production Methods, Production planning and management9 subtopics

BM Toolkit - Core business frameworks and tools15 subtopics

IB Business Management 5.6.5 Cost to Buy (CTB) Vs. Cost to Make Notes

Unit 1: Introduction to Business Management - Core operational components and business functions6 subtopics

Unit 2: HR Management - Motivation, Structure, Hierarchy7 subtopics

Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents9 subtopics

Unit 4: Marketing Management - The 7 P's, strategies and forecasting6 subtopics

Unit 5: Operations Management - Production Methods, Production planning and management9 subtopics

BM Toolkit - Core business frameworks and tools15 subtopics

Evaluating Production Decisions: Cost to Buy (CTB) vs. Cost to Make (CTM)

Cost to Buy (CTB): What Does It Include?

Components of CTB

Advantages of Buying

Disadvantages of Buying

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

Evaluating Production Decisions: Cost to Buy (CTB) vs. Cost to Make (CTM)

Cost to Buy (CTB): What Does It Include?

Components of CTB

Advantages of Buying

Disadvantages of Buying

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account