A Shoe Manufacturer`s Dilemma: Produce or Outsource?

Case Code: CLFIN047 Case Length: 5 Pages Period: - Pub Date: 2025 Teaching Note: Available

Price: Rs.300 Organization : Kiraro Industry :Textiles & Apparel Countries : India Themes: Accounting and Control,Cost-Volume-Profit Analysis, Marginal Costing

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.

Issues

• 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.

Introduction

Aditya Rao (Aditya), who had joined his father’s shoe manufacturing business, Kiraro, was caught in a dilemma. Should they manufacture shoelaces in house or outsource the manufacturing? Kiraro was founded by Aditya’s father, KM Rao (Rao) in Chennai, capital of the southern Indian state of Tamil Nadu. Rao also owned a number of footwear outlets across almost all the major cities in India.

During Aditya’s childhood days he used to spend most of his summer vacation at the manufacturing plants or at footwear outlets. Rao was growing old and wanted Aditya to take over his business after his graduation.

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

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