Pro-Forma income statement: impact of outsourcing
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Explain how outsourcing would impact the pro-forma income statement.
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Solution Summary
The cited solution presents 12 reasons why companies might want to outsource by explaining the possible benefits to doing so. Not all of the 12 reasons translate to the 'bottom line' but the conclusion points to those which do. It is a good discussion of the topic.
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We understand that outsourcing is the process of subcontracting some process or service currently being paid for inside an organization. Probably the most common reason to outsource is for cost savings, but there could be any number of other reasons. Following is a good list of possible reasons and benefits to outsourcing:
? Cost savings. The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.[12]
? Cost restructuring. Operating leverage is a measure that compares fixed costs to ...
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