Make or Buy
MAKE OR BUY
Management decision should be based on careful consideration of all the factors, including implication as regard to tax liability. Keeping view various tax implications that are relevant while taking some specific management decision under different provision of Income tax Act have dealt with:
Make or Buy:
One of the vital investment subject to the influence of tax factor is “Make or buy decision”. Most of the companies have to decide sometimes or the other whether they should buy a part from a market and stop making it themselves or whether they should stop buying it and start making it. There are various consideration affecting this decision, chief of which is cost. In other words, in making this sort of decision the various cost of making the product or part component of product is compared with its purchase price in market. A host of other consideration such as capacity utilization, supply position of the article to be bought, terms of purchase, ill effect of layoffs etc. are kept in view while taking such decision. Tax planning can be helpful in decision as regards making or buying a particular product, component etc.
Broadly speaking, business can be of following three types: (1) Trading Business (2) Manufacturing Business (3) Service Sector
The decision ‘to make or buy’ is a costing decision and is also influenced by many general factors which are as follows: * Availability of financial resources * Investment required in fixed assets * Availability of skilled and unskilled labour * Availability of suppliers * Existence of idle capacity in organization * Price at which the product is available in the market * Other miscellaneous factors
* Apart from costing considerations following factors also go in decision making process: * Utilization of Capacity * Inadequacy of funds * Latest Technology * Dependence of Supplier * Labor problem in the factory
* What are the cost involved in making of a
Management decision should be based on careful consideration of all the factors, including implication as regard to tax liability. Keeping view various tax implications that are relevant while taking some specific management decision under different provision of Income tax Act have dealt with:
Make or Buy:
One of the vital investment subject to the influence of tax factor is “Make or buy decision”. Most of the companies have to decide sometimes or the other whether they should buy a part from a market and stop making it themselves or whether they should stop buying it and start making it. There are various consideration affecting this decision, chief of which is cost. In other words, in making this sort of decision the various cost of making the product or part component of product is compared with its purchase price in market. A host of other consideration such as capacity utilization, supply position of the article to be bought, terms of purchase, ill effect of layoffs etc. are kept in view while taking such decision. Tax planning can be helpful in decision as regards making or buying a particular product, component etc.
Broadly speaking, business can be of following three types: (1) Trading Business (2) Manufacturing Business (3) Service Sector
The decision ‘to make or buy’ is a costing decision and is also influenced by many general factors which are as follows: * Availability of financial resources * Investment required in fixed assets * Availability of skilled and unskilled labour * Availability of suppliers * Existence of idle capacity in organization * Price at which the product is available in the market * Other miscellaneous factors
* Apart from costing considerations following factors also go in decision making process: * Utilization of Capacity * Inadequacy of funds * Latest Technology * Dependence of Supplier * Labor problem in the factory
* What are the cost involved in making of a