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Chapter 3

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Greg Clark

BU247 Chapter 3 – Using Costs in Decision Making continued Week 3 Make-or-buy – The Outsourcing Decision -Deciding whether to contract out for a product or service is known as the make-or-buy decision -The costs that should be considered: Internal costs avoided External costs incurred -All variable costs -The cost of purchasing the part -Any avoidable fixed costs such as the cost of -Any transportation costs supervisory personnel who would be laid off or -Any other costs involved in dealing with the machinery that would be sold outside supplier, ordering the product, and receiving and inspecting it Manufacturing Costs -Manufacturing costs are classified into three groups: direct materials, direct labour, and manufacturing overhead -Direct materials include materials that can be traced easily to a unit of output and are of significant economic consequence to the final product -Direct labor costs are those labour costs that can be traced easily to
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