Explain how a management accountant can use make or buy analysis and the limiting factor principles to achieve optimal solutions to an internal management problem. (4 marks)
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Make or buy analysis involves whether to manufacture a product in-house or to purchase it from a third party. The outcome of this analysis should be a decision that maximizes the long-term financial outcome for a company. (2 marks)
Limiting factors refer to the constraints in availability of production resources (e.g. shortages in labor, machine hours or materials) that prevent a business from maximizing its sales. (2 marks)