Which factor helps outsourced services achieve lower unit costs?

Which factor helps outsourced services achieve lower unit costs?

• A. Shorter lead times
• B. Economies of scale
• C. Increased need for in-house staff
• D. Higher quality control costs

Answer: (B)

Economies of scale is what lowers unit costs when output increases. When a service is outsourced, the provider often serves many clients at once, so fixed costs like infrastructure, licenses, and specialized staff can be spread over a larger number of units or transactions. This shared capacity and specialization make each unit cheaper to produce for the client. In contrast, shorter lead times don’t automatically reduce costs; they can even raise costs if they require more frequent, smaller batches or overtime. An increased need for in-house staff adds to fixed and variable expenses, raising unit costs rather than lowering them. Higher quality control costs also push costs up. So the factor that most reliably reduces unit costs in outsourcing is economies of scale.

Economies of scale is what lowers unit costs when output increases. When a service is outsourced, the provider often serves many clients at once, so fixed costs like infrastructure, licenses, and specialized staff can be spread over a larger number of units or transactions. This shared capacity and specialization make each unit cheaper to produce for the client.

In contrast, shorter lead times don’t automatically reduce costs; they can even raise costs if they require more frequent, smaller batches or overtime. An increased need for in-house staff adds to fixed and variable expenses, raising unit costs rather than lowering them. Higher quality control costs also push costs up. So the factor that most reliably reduces unit costs in outsourcing is economies of scale.