Buy vs build, how do you choose?

[mhajicek]

Been a few years ago so I got something mixed up . Regardless to come up with $4,000 you would have to sell $80,000 worth of product @ %5 net. Whats so hard to understand about that? Unless of course your business is the only one whose gross sales = 100% net or maybe you just find money ,I guess that would be 100% net.

Maybe I'm just not getting you. I have no idea where your 5% is coming from.

Option 1: Spend $4000 and have the brackets.
Option 2: Make the brackets, don't spend $4000, but spend the cost of your labor and materials.

There should be no other numbers involved. If you're talking about the cost justification of buying the brackets, that's a completely different matter.

Like for me, I just bought a pair of 4" vises for about $600. I can easily justify that, because it will improve my output by far more than that cost over the life of the vises, but that doesn't factor into the decision about make vs. buy. If I were to make them, counting the value of my time plus materials, they would cost me several thousand dollars to make. They'd still pay themselves off, but making them would be the stupid choice in that case. How much money I can make with them doesn't change that.

 

[ratbldr427]

Maybe I'm just not getting you. I have no idea where your 5% is coming from.

Option 1: Spend $4000 and have the brackets.
Option 2: Make the brackets, don't spend $4000, but spend the cost of your labor and materials.

There should be no other numbers involved. If you're talking about the cost justification of buying the brackets, that's a completely different matt

Maybe I'm just not getting you. I have no idea where your 5% is coming from.

Option 1: Spend $4000 and have the brackets.
Option 2: Make the brackets, don't spend $4000, but spend the cost of your labor and materials.

There should be no other numbers involved. If you're talking about the cost justification of buying the brackets, that's a completely different matter.

Like for me, I just bought a pair of 4" vises for about $600. I can easily justify that, because it will improve my output by far more than that cost over the life of the vises, but that doesn't factor into the decision about make vs. buy. If I were to make them, counting the value of my time plus materials, they would cost me several thousand dollars to make. They'd still pay themselves off, but making them would be the stupid choice in that case. How much money I can make with them doesn't change that.

I'm not trying to come up with any novel accounting scheme. You didn't read my first post. I assume no one gave you the $400, you sold goods or services and after expenses you had a profit with enough left over to buy them. How much did you sell to end up with $400 left over? If you are a one man shop and you did a $400 cash job there is no figuring involved ,no taxes.
If the company writes a check for $11,000 it comes from money earned, net profit. To replace that money the company has to sell 20 times that assuming they net %5. It is just a simple way of looking at expenses and how they relate to sales. I looked at what those brackets cost this morning one was$99 another was $485,I didn't go farther because I think I averaged them all out at about $280 or so. Totally insane for what they are. The part on the left is about 3"x .280" and costs $1,200 from the mfg. These machines are loaded with lots of this kind of stuff that can be easily made in spare time

 

[mhajicek]

How much did you sell to end up with $400 left over?

About $600. Figure $100 for material, cutters, and overhead, $100 for me.

 

[EmGo]

Even if your labor were free, where did the extra $7,000 come from? Your accounting is very "novel".

No, actually he brought up a good point. Doesn't apply so much to small or one-man shops but in a bigger company, stuff you buy has to come from profits. To make $1,000 in profits, you have to do $5,000 in work (for example). So it isn't really $1,000 you are spending, it's five times that.

Probably an accounting-type person could get even more arcane on this, but I think this is a valid observation. And actually, altho the bean-counters have a fixation with firing rather than actually cutting costs, it makes a good case for keeping a maintenance guy on salary.

 

[mhajicek]

Rereading his last post, it's making a little more sense. Apparently when he first claimed the brackets cost $100 each, that was inaccurate. Also it appears his company only makes 5% margin, and he was talking about cost justification.

 

[BoxcarPete]

Rereading his last post, it's making a little more sense. Apparently when he first claimed the brackets cost $100 each, that was inaccurate. Also it appears his company only makes 5% margin, and he was talking about cost justification.

Big businesses with tons of overhead end up with slimmer margins after all the numbers have been crunched. I used to work for a $4B automotive tier 1 who was delighted to have ended the year with 2% ROS.

 

[ratbldr427]

Rereading his last post, it's making a little more sense. Apparently when he first claimed the brackets cost $100 each, that was inaccurate. Also it appears his company only makes 5% margin, and he was talking about cost justification.

I corrected that they really would have cost $11,000,after all that i was 10years ago. I'm not sure exactly what their net is but %5 is easy to compute at a 20 to 1. I use that to show the pm & ceo justification when I take on an added benifit job.I told the son in law of the owner one time that I figured %5 was close enough to use and he replied " I wish".
I'm making some 5' 10mm shafts with three stainless 18" x1" formed flaps on them with 4 plastic mount bearings. With our 20%" discount" from the manufacturer they cost $3,900 ea. I just finished the die set to form them but after that I'll be able to make them in an hour or two each. When I retire I could make a killing on this kind of stuff but I'm getting to old to want to go into another business.