JKL Group has a rental cost of €25,000 per month with a four-year lease term. Casual staff are employed on a weekly basis to carry out telephone sales. The cost of casual staff is €12,000 per month and telephone call costs are €5,000 per month.
-For JKL Group, rental is
A) A relevant cost because there is a long-term rental commitment
B) A relevant cost because it must be paid irrespective of the outsourcing decision
C) Not a relevant cost because the offshore service provider will pay the rental cost
D) Not a relevant cost because it must be paid irrespective of the outsourcing decision

Question

Quizplus · Accepted Answer

$$\begin{array} { | l | r | r | } 
\hline \text { Total cost comparison } & \text { Make } & \text { Buy } \
\hline \text { Rental cost } & 25000 & 25000 \
\hline \text { Casual labour } & 12000 & \
\hline \text { Telephone call costs } & 5000 & \
\hline \text { Subcontract cost } & & 15000 \
\hline \text { Total cost } & 42000 & 40000 \
\hline & & \
\hline \text { Relevant cost comparison } & \text { Make } & \text { Buy } \
\hline \text { Casual labour } & 12000 & \
\hline \text { Telephone call costs } & 5000 & \
\hline \text { Subcontract cost } & & 15000 \
\hline \text { Total cost } & 17000 & 15000 \
\hline
\end{array}$$ Rental is not a relevant cost because it is the same under either alternative

JKL Group Has a Rental Cost of €25,000 Per Month