Internal resources, such as the legal department, training department, information technology, tend to be under-utilized, leading to a death spiral, when:
A)managers may choose whether to purchase the service internally or externally
B)the internal pricing system seeks to recover sunk costs
C)managers may decide to reduce the quantity of services used
D)the internal pricing system utilizes full costs
E)all of the above

Question

Quizplus · Accepted Answer

All the options listed contribute to the under-utilization of internal resources. When managers have the choice to source services internally or externally, they might opt for external sources if they perceive better value or lower costs. If the internal pricing system attempts to recover sunk costs or utilizes full costs, internal services may appear more expensive compared to external options, leading to reduced usage internally. This can initiate a cycle where internal departments have less work, potentially leading to higher costs per service (due to fixed costs spread over fewer services), further encouraging the use of external services and exacerbating the under-utilization of internal resources.

Internal Resources, Such as the Legal Department, Training Department, Information