Chapter 8 - Relevant costing Flashcards Preview

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

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.

2

What is a sunk cost?

Costs that have already been occurred in the past.

3

Are sunk costs relevent?

No

4

What are committed costs?

Costs that are unavoidable in the future.

5

Are committed costs relevent?

No

6

Should fixed costs be ignored?

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

7

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

Yes

8

What kind of items are relevant to the decision?

Cash items
ie not depreciation

9

How do you calculate the savings per unit?

Purchase price - Variable cost to make

10

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

11

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.

12

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.

13

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.

14

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

Will outsourcing affect contractual obligations with suppliers or employees?

15

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.

16

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

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

17

What are the advantages of outsourcing?

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

18

What are the disadvantages of outsourcing?

-Possibility of choosing the wrong supplier
-Loss of visibility and control over process
-Possible increase to lead times.

19

What is the minimum contract price

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