Imagine you are the senior accountant in the Fixed Assets department at your org

Question

Imagine you are the senior accountant in the Fixed Assets department at your organization, and management is undecided as to whether it should construct its fixed assets or purchase such assets from an outside source. You are responsible for preparing a report to management, highlighting the advantages and disadvantages of self-constructed assets. Suggest to management two (2) advantages of purchasing the assets from an outside organization, as opposed to constructing the assets internally. Justify your response.

Explanation / Answer

Purchasing of fixed assets would have the following advantages -

1. Lower cost - Fixed asset construction would require expertise and purchase of non regular items. The cost of hiring expertise and non regular items would be high for the company as there would not be economies of scale. Purchasing the same from an outside regular manufacturer would allow obtaining the same at lower cost.

2. Time Saving- Purchase of asset would save significant amount of time as the same may be readily available as against manufacturing the same.

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