This paper considers a scheduling problem in a two-machine flowshop with outsourcing strategy incorporated. The jobs can be either processed in the first machine or outsourced to outside subcontractors. This paper wants to determine which jobs to be processed in-house and which jobs to be outsourced. If any job is decided to be outsourced, then an additional outsourcing cost is charged The objective of this paper is to minimize the sum of scheduling cost and outsourcing cost under a budget constraint. At first this paper characterizes some solution properties, and then it derives solution procedure including DP (Dynamic Programming) and B&B (Branch-and-Bound) algorithms and a greedy-type heuristic. Finally the performance of the algorithms are evaluated with some numerical tests.