X Company is considering outsourcing its email system. Total costs related to la

Question

X Company is considering outsourcing its email system. Total costs related to last month's in-house email operation, when there were 3,650 employee mailboxes, were as follows:

$12,571 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 4,005 mailboxes will be required per month.

By how much will X Company's monthly profits change if they decide to 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 costs are less than the buy costs.]

Variable costs:     Email license $16,060     Virus protection license 5,110     Miscellaneous 13,140 Fixed costs     Computer hardware 30,660

Explanation / Answer

Incremental savings /(loss)If outsourced .

Savings in : Email license    [16060 * 4005 /3650 ] 17622 Miscellaneous cost [13140 *4005 /3650] 14418 savings in computer hardwar cost [ 30660 - 12571 ] 18089 Total savings 50129 Less:Incremental cost [14.50 *4005] - 58072.5 Incremental loss - 7943.5

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