Abstract

The case study ‘A Shoe Manufacturer’s Dilemma: Produce or Outsource?’ covers the strategic decision-making dilemma faced by Aditya Rao, a shoe manufacturer. The main dilemma revolves around whether his company should produce shoelaces in-house or outsource it. This case study aims to provide insights into the concept of Marginal Costing, the application of marginal costing in the decision making of a firm, and the broader implications of the make-or-buy decision. It provides a practical application of cost analysis, the relationship between cost-volume and profit, and the impact on the company’s financial performance. Profit is the most important factor for measuring business performance. Needless to say, profit is affected by many factors such as fixed costs, variable cost, volume, and selling price. This case is discussed in the context of managerial decision making to strategically increase the profitability of the business.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Explain marginal costing, its methodology, and distinguishing features.
• Explore the key differences between absorption costing and marginal costing, focusing on their approaches to cost allocation.
• Develop the ability to use marginal costing principles to evaluate make-or-buy decisions.
• Apply various cost analysis techniques, cost-per-unit calculations, and total cost comparisons, to thoroughly assess the financial implications of in-house manufacturing versus outsourcing options.
• Identify and evaluate the strategic factors that influence make-or-buy decisions, beyond financial considerations.

Keywords

Produce or Outsource; Cost-Volume-Profit Analysis; Marginal Costing; CVP Analysis; Shoelace Procurement Decision; Improving Operational Efficiency; Cost Reduction Strategy; Improving Profitability; Strategic Alignment