BigCorp runs a chain of fast food establishments. The company’s finance director has suggested to other board members that it might be cost-effective to close down the in-house cleaning department which organises the employment of cleaning staff for the restaurant outlets. Both the cleaning department administrative staff and the cleaners themselves are employed on permanent contracts. Instead, the work could be contracted out to one of the large national firms of cleaning contractors.
Identify the costs that might be relevant in comparing the two options, and in reaching a decision on whether or not to contract out the cleaning.
Identify and briefly discuss any non-financial factors that should be taken into account.
1. Which of the McGregor theories about human behaviour most closely accords with your own view of human behaviour? Explain the reasons for your choice.
2. What are the implications for management and cost accounting if it is assumed that agency theory accurately describes managerial motivation?
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