BU247 Chapter Notes - Chapter 3: Outsourcing
Document Summary
Chapter 3 using costs in decision making continued. Deciding whether to contract out for a product or service is known as the make-or-buy decision. Any avoidable fixed costs such as the cost of supervisory personnel who would be laid off or machinery that would be sold. Any other costs involved in dealing with the outside supplier, ordering the product, and receiving and inspecting it. 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 the creation of a unit of output. Manufacturing overhead costs are all costs incurred by a manufacturing facility that are not direct materials costs or direct labor costs.
