Chapter 8 - Relevant costing Flashcards Preview

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Flashcards in Chapter 8 - Relevant costing Deck (19)
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1
Q

What kind of cash flow should be considered?

A

Future cash flows that occur as a result of the decision.

Extra cash flows as a result of the decision.

2
Q

What is a sunk cost?

A

Costs that have already been occurred in the past.

3
Q

Are sunk costs relevent?

A

No

4
Q

What are committed costs?

A

Costs that are unavoidable in the future.

5
Q

Are committed costs relevent?

A

No

6
Q

Should fixed costs be ignored?

A

Yes - unless there is an incremental fixed cost as a result of the decision.`

7
Q

Should opportunity cost be included? (The next best use of a resource)

A

Yes

8
Q

What kind of items are relevant to the decision?

A

Cash items

ie not depreciation

9
Q

How do you calculate the savings per unit?

A

Purchase price - Variable cost to make

10
Q

What are the other factors to consider when buying externally in relation to Reliability?

A

Can the supplier meet the requirements of…

  • Quantity
  • Quality
  • Timeliness
  • Price stability
11
Q

What are the other factors to consider when buying externally in relation to Specialist skills?

A

External supplier may posses specialist skills that are not available in house.

12
Q

What are the other factors to consider when buying externally in relation to Alternative use of resource?

A

Outsourcing may free up resources which can be used in other parts of the business.

13
Q

What are the other factors to consider when buying externally in relation to Social?

A

Will outsourcing result in a reduction of the workforce? Redundancy costs should be considered.

14
Q

What are the other factors to consider when buying externally in relation to Legal?

A

Will outsourcing affect contractual obligations with suppliers or employees?

15
Q

What are the other factors to consider when buying externally in relation to Confidentiality?

A

Is there a risk of loss of confidentiality, especially if the external supplier performs similar work for rival companies.

16
Q

What are the other factors to consider when buying externally in relation to customer reaction?

A

Do customers attach importance to the products being made in-house?

17
Q

What are the advantages of outsourcing?

A

-Greater flexibility
-Lower investment risk
-Improved cash flow
-Concentrates on core competence
Enables more advanced tech to be used without investment

18
Q

What are the disadvantages of outsourcing?

A
  • Possibility of choosing the wrong supplier
  • Loss of visibility and control over process
  • Possible increase to lead times.
19
Q

What is the minimum contract price

A

The total net relevant cash flow associated with the contract (break-even price)