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What questions should managers answer when considering outsourcing?

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Answer

When considering outsourcing, the manager must consider some important questions such as cost-saving, quality, thedeadline to deliver the product, impact on sales revenue, and many more.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Management

The term management refers to the authority of a business entity responsible formanaging and controlling the activities and operations of the business and its human assets.Lower, middle and upper levels are some levels of management of an organization.

02

Important questions when considering outsourcing

A manager must answer the following questions when considering the outsourcing:

  • A manager must review the outsourcing will save thecompany’s costs or not.
  • The impact of outsourcing on thesales revenuemust be taken into mind when considering outsourcing.
  • Whether the client will be able to deliver the services or products to meet thedeadlines.
  • Whether the vendor istrustworthyor may harm business information should be reviewed.
  • Also, the managers must check the resources and technology of the service provider to ensurequality.

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Most popular questions from this chapter

What questions should managers answer when setting regular prices?

What questions should managers answer when considering dropping a product or segment?

Members of the board of directors of Security Check have received the following operating income data for the year ended May 31, 2018:

SECURITY CHECK

Income Statement

For the Year Ended May 31, 2018

Product Line

Industrial Systems

Household Systems

Total

Net Sales Revenue

\( 360,000

\) 380,000

\( 740,000

Cost of Goods Sold:

Variable

37,000

47,000

84,000

Fixed

260,000

63,000

323,000

Total Cost of Goods Sold

297,000

110,000

407,000

Gross Profit

63,000

270,000

333,000

Selling and Administrative Expenses:

Variable

64,000

73,000

137,000

Fixed

44,000

26,000

70,000

Total Selling and Administrative Expenses

108,000

99,000

207,000

Operating Income (Loss)

\) (45,000)

\( 171,000

\) 126,000

Members of the board are surprised that the industrial systems product line is not profitable. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by \(80,000 and decrease fixed selling and administrative expenses by \)12,000.

Requirements

1. Prepare a differential analysis to show whether Security Check should drop the industrial systems product line.

2. Prepare contribution margin income statements to show Security Check’s total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement 1.

3. What have you learned from the comparison in Requirement 2?

Moore Company sells both designer and moderately priced fashion accessories. Top management is deciding which product line to emphasize. Accountants have provided the following data:

Per Item

Designer Moderately Priced

Average sales price \(185 \)87

Average variable costs 105 22

Average contribution margin 80 65

Average fixed costs (allocated) 20 10

Average operating income \(60 \)55

The Moore Company store in Grand Junction, Colorado, has 14,000 square feet of floor space. If Moore Company emphasizes moderately priced goods, it can display 840 items in the store. If Moore Company emphasizes designer wear, it can display only 560 designer items. These numbers are also the average monthly sales in units.

Prepare an analysis to show which product the company should emphasize.

What does the target full product cost include?

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