Final answer:
A small manufacturing company's decision to have its accounting handled by an external firm is an example of outsourcing, which involves hiring external contractors to perform internal tasks.
Step-by-step explanation:
When a small manufacturing company decides to have its accounting function performed by a medium-sized accounting firm, this is an example of outsourcing. Outsourcing is the process of hiring outside contractors, sometimes abroad, to perform tasks that a company once performed internally. This practice can be observed in various industries, from manufacturing to customer service, and is often driven by the pursuit of cost savings and efficiency. Unlike offshoring, which involves moving company operations overseas to benefit from cheaper labor markets, outsourcing does not necessarily mean the operations are taken to another country, although it can be the case.