Chapter 8 - Relevant costing Flashcards
What kind of cash flow should be considered?
Future cash flows that occur as a result of the decision.
Extra cash flows as a result of the decision.
What is a sunk cost?
Costs that have already been occurred in the past.
Are sunk costs relevent?
No
What are committed costs?
Costs that are unavoidable in the future.
Are committed costs relevent?
No
Should fixed costs be ignored?
Yes - unless there is an incremental fixed cost as a result of the decision.`
Should opportunity cost be included? (The next best use of a resource)
Yes
What kind of items are relevant to the decision?
Cash items
ie not depreciation
How do you calculate the savings per unit?
Purchase price - Variable cost to make
What are the other factors to consider when buying externally in relation to Reliability?
Can the supplier meet the requirements of…
- Quantity
- Quality
- Timeliness
- Price stability
What are the other factors to consider when buying externally in relation to Specialist skills?
External supplier may posses specialist skills that are not available in house.
What are the other factors to consider when buying externally in relation to Alternative use of resource?
Outsourcing may free up resources which can be used in other parts of the business.
What are the other factors to consider when buying externally in relation to Social?
Will outsourcing result in a reduction of the workforce? Redundancy costs should be considered.
What are the other factors to consider when buying externally in relation to Legal?
Will outsourcing affect contractual obligations with suppliers or employees?
What are the other factors to consider when buying externally in relation to Confidentiality?
Is there a risk of loss of confidentiality, especially if the external supplier performs similar work for rival companies.
