X Company is considering outsourcing its email system. Total costs related to la
ID: 2461901 • Letter: X
Question
X Company is considering outsourcing its email system. Total costs related to last month's in-house email operation, when there were 3,795 employee mailboxes, were as follows:
Variable costs:
Email license $19,734
Virus protection license 7,590
Miscellaneous 8349
Fixed costs
Computer hardware 33,396
$14,360 of the computer hardware costs were common costs that will continue even if the email system is abandoned, and X Company will still need to pay for the virus protection license. Y Company has offered to operate an email system for X Company for $14.50 per mailbox. Next year, X Company estimates that 4,285 mailboxes will be required per month.
By how much will X Company's monthly profits change if they decide ti outsource its email function to Y Company instead of managing the service internally? [A positive number means that make costs are more than buy costs; a negative number means that make costsare less than the buy costs.]
Please show the work step by step. I will be appreciated thanks. Please give me correct answer.
Explanation / Answer
Solution.
X Company's monthly profits will decrease by -$11,387.5 ( 50,745 - 62,132.5) if they decide to outsource its email function to Y Company instead of managing the service internally
The difference is calculated = Total cost of X co. ( In house) - Total cost of Y co. ( outsourcing )
= -$11,387.5 ( 50,745 - 62,132.5) a negative number it means that make costs are less than the buy costs
* Variable cost per unit = Total variable cost / No of mailboxes
= 19,734 / 3,795
= 5.2
* Miscellaneous Variable cost per unit = Total Miscellaneous Variable cost / No. of mailboxes given
= 8,349 / 3,795
= 2.2
Particular X co. ( In house) Y co. ( Outsourcing ) E-mail Licence (* Variable cost per unit X no. of mailboxes required ) 22,282 (*5.2 X 4,285 ) - Miscellaneous (* Miscellaneous Variable cost per unit X no. of mailboxes required ) 9,427 (*2.2 X 4,285) - Computer Hardware (33,396-14,360) 19,036 - Outsoursing to Y co. (No. of mail X Price per mail ) -- 62,132.5 (4,285X14.5) Total Cost 50,745 62,132.5Related Questions
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