PEV - Subcontracting - help!

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
June 2005 paper. How do I go about calculating whether or not it's beneficial to subcontract a product???

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV - Subcontracting - help!

    Look at the question in break-even terms.

    Sub-contracting is all variable cost
    Produing ourselves has fixed and variable costs

    So the subcontracting decision will lead to
      saving fixed costs
    and
      a higher variable cost per unit

    Saving divided by the higher variable cost (or lower contribution) per unit will give you the number of units you must produce to justify not sub-contracting.

    Then look at recent sales and forecast whether you will achieve more or less sales.

    If you expect fewer, then sub-contract
    If you expect more, then produce in-house


    But whatever you do, don't go into today's exam tired!!

    sandy.hood@chichester.ac.uk

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV - Subcontracting - help!

    Thanks! :D

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