Question

Assuming that SQU LLC Company has been outsourcing its customer service in the belief that it would reduce costs and increase firm's profitability. However, the fim's financial records showed that there has been no meaningful increase in the firm's profitability. Previously, the firm used a single-rate method to allocate customer service costs. A per unit cost for customer service was computed and compared to the price of the outside supplier. The price charged by outside supplier was lower and thus the outside offer was accepted. What do you think would be the best explanation(s) based on costing method to the above scenario?

Answer 1

Outsourcing of customer service is the better option by the point of view of cost reductions and increase the profitability of the company and it also provide the best customer service to the customers.

Here SQU LLC Company use single rate cost allocation method for compere the cost per unit before the Outsourcing of service and after the Outsourcing of services.

Single rate cost allocation method means cost is ascertained per unit of a single product in continuous manufacturing activity. Every Single or per unit, the cost calculates by dividing total production cost by several units produced.

Here the comapny calculates the per unit cost for customer service was computed and compared to the price of the outside supplier. The price charged by outside supplier was lower.

So company can accepted the offer and select the outside supplier for the customers service of the company.

Thank you.