Sub Contracting

Introduction to Sub-contracting

Those operations that need special processing can be sub-contracted meaning thus that certain particular jobs might be got completed from outside on account of some specific reasons. These can be demonstrated as under:

(i) Generally demand is a fluctuating phenomenon in each business. Though, on particular occasions additional demand might be created that may need its meeting out by taking out the work or taking up the production activity in the business. It might, at times be not possible since it is only a temporary phase and permanent services (labour, machine, space etc.) might not be feasible to spare. In such an event, outside services become important to be engaged and the jobs done through assigning them to sub-contractors. Payment made to them is treated like direct expenses.

(ii) In case, a number of job needs specialised knowledge, expertise, skill or make use of particular machinery or equipment, that are not available in-house, the business might have to hire the service of outsiders. In such conditions also whatever payments are completed to them are considered as direct expenses chargeable to those specific jobs or work orders.

In the situation mentioned within point no. (ii), occasionally. The management might decide to appoint special machinery or create expertise existing in house. As it might suppose repealed orders, it might support allotment of jobs that need use of general facilities (labour, machinery, technical personnel or equipment) to outsiders from time to time. Any such type of expenses incurred on sub-contracting is a direct expense.

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