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Management accounting 2022

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Question:

What can choosing to outsource mean for the capacity of the company?

Author: Hjalmer Pedersen



Answer:

If we choose to outsource, we might have unused capacity meaning we have fixed costs that goes toward nothing! However, maybe the unused capacity can be used to manufacture more of the main product? If that earns more profit than the cost of purchasing the part externally, then we should outsource! REMEMBER, to state an assumption of this if you assume the unused capacity could be used toward producing more products.


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