Many firms outsource jobs today to countries with lower labor costs. Firms such as Apple outsource virtually all of their production. Over the last decade, U.S. firms also have outsourced business functions (e.g., telephone support, document processing) to firms in India and China.

Required:

What are the implications of outsourcing for the variability and traceability of costs? For concreteness, consider the outsourcing of

(1) A product based on a piece-rate contract, and

(2) A business process for a fixed-fee contract.