Lecture 4

Question 1

Replacement of Equipment

Answer 1

Relevant costing can help us to decide if we should replace equipment that is used in the business or in our personal life.

Question 2

Outsourcing (make or buy) decisions (simple example)

Answer 2

If a subcontractor is used this is sometimes called “outsourcing”, where a decision is made to either make the product or service in-house or buy the product or service from out the house.

Question 3

Advantages of outsourcing

Answer 3

• Allows the business to focus on core activities
• May result in cost saving
• Flexibility

Question 4

Disadvantages of outsourcing

Answer 4

• Loss of control e.g. over price, quality and reliability of supply
• Hidden costs
• Bad publicity (ethics of cheap labour)