The Costs That Should Be Included in an Outsourcing Decision

question 121

Multiple Choice

The costs that should be included in an outsourcing decision are

• A)fixed costs.
• B)nonrecurring costs.
• C)sunk costs.
• D)differential costs.

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Definitions:

Fixed Costs

Expenses that remain constant regardless of production or sales levels, like lease payments, wages, and coverage plans.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials or commission on sales.

Fixed Expenses

Costs that do not change with the level of production or business activity.

Unit Contribution Margin

The amount by which the selling price of a unit exceeds its variable costs, indicating how much it contributes to covering fixed costs and generating profit.