Which statement describes the cost impact of outsourcing on ABC's operations?

• A. It reduces the need to invest in expensive disposal equipment and employee training.
• B. It increases long-term capital expenditure.
• C. It raises supervision and compliance costs.
• D. It does not affect ABC’s cost structure.

Answer: (A)

Outsourcing a function changes how costs are incurred by transferring ownership of assets and the need for specialized staff to the service provider. Because ABC would rely on the external supplier for disposal equipment and trained personnel, ABC no longer needs to invest in expensive disposal equipment or ongoing employee training. Costs become service fees, typically turning a large fixed capital outlay into ongoing operating costs, and often reducing the overall capital requirement. The other options don’t fit this pattern: outsourcing usually lowers long-term capital expenditure, it does not automatically raise supervision and compliance costs, and it does affect the cost structure by shifting how costs are incurred.