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Make-or-buy decision making

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Make-or-buy decision making

  • This topic has 1 reply, 2 voices, and was last updated 12 years ago by John Moffat.
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  • May 8, 2013 at 4:55 pm #124897
    puifoong
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Hi,

    Shall we apply relevant costing when it comes to a outsourcing problem? I am a little confused on how sunk costs such as depreciation are treated in this kind of question. It makes total sense to me to ignore the sunk costs but some of the past year questions I had encountered actually took these costs into account as well.

    Thanks for clearing my doubts =)

    May 8, 2013 at 6:44 pm #124906
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    Depreciation is not really a sunk cost. The reason we ignore depreciation is because we would be charging it anyway – whether or not we do the contract (or whatever it is).
    Sunk costs are where the money has already been spent and should always be ignored.

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