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Chapter 06 (Cont.) - Pricing decisions and short-term decisions - Coggle…
Chapter 06 (Cont.) - Pricing decisions and short-term decisions
Outsourcing
Reasons for outsourcing
Specialist contractor can offer superior quality and efficiency
Free capital can be invested in core activities
Contractors have the capability and flexibility to meet sudden variations in demand.
May be cheaper to outsource in case training costs incurred to train staff
Considerations of outsourcing
In-house option should give more direct control, while outsource has specialist and expertise skills
Will outsource create spare capacity?
Are there any hidden benefits from subcontracting
Would the company's workforce resent the loss of work to subcontractor?
Does the company wish to be flexible and maintain control over work?
Further processing decision
Joint products: Output from the same processing operation, but unidentifiable until the point of separation
Joint products has substantial sale value
Joint products should be separately costed
The point at which joint products are identifiable are split off point
Cost incurred prior to split off point are joint costs (common cost)
Shut down decisions
In practice, shutdown decision involve longer-term decision, capital expenditure and revenue
A shutdown will save annual operating cost
Closure will release unwanted non-current assets for sale
Employees affected by the closure will be made redundant or relocated