Each year, Sunshine Motos surveys 7,500 former and prospective customers regardi

Question

Each year, Sunshine Motos surveys 7,500 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering outsourcing the survey to Global Associates, who have offered to conduct the survey and summarize results for $30,600.Craig Sunshine, the president of Sunshine Motors, believes that Global will do a higher-quality job than his company has been doing, but is unwilling to spend more than $10,000 above the current costs. The head of bookkeeping for Sunshine has prepared the following summary of costs related to the survey in the prior year.

Mailing   $16,800                                                                     

Printing (done by Lester Print Shop)   $4,500

Salary of Pat Fisher, part-time employee who stuffed envelopes and summarized data when surveys were returned
       (100 hours X $15)  $1,500

Share of depreciation of computer and software used to track survey responses and summarized results.   $1,100

Share of electricity/phone/etc. based on square feet of space occupied by Pat Fisher vs. entire company.  $500

REQUIRED: What is the incremental cost of going outside versus conducting the survey as in the past?

Explanation / Answer

The incremental cost of going outside versus conducting the survey as in the past should be computed by subtracting the costs of mailing, printing, and salary of P. Fisher from the offer price. Share of depreciation of computer and share of electricity/phone/etc. will not be subtracted from the offer price because these are fixed cost and will be incurred whether the survey is outsourced or done inhouse.

Incremental cost of going outside = $30,600 - $16,800 - $4,500 - $1,500 = $7,800

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