X Company is considering outsourcing its email system. Total costs related to la
ID: 2462811 • 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 3,575 employee mailboxes, were as follows:
$10,382 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 $12.20 per mailbox. Next year, X Company estimates that 3,865 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.]
Explanation / Answer
Total cost in case of In house email operation (3865 employee mailboxes) Cost per mailbox in $ Total cost in $ Variable cost - Email license 5.8 22417 - Virus protection license 1.8 6957 - Mise. 4.4 17006 Total Variable cost 46380 Fixed Cost - Computer hardware 23595 Total Fixed cost 23595 Total Cost 69975 Total cost in case of outsource of email operation (3865 employee mailboxes) Cost per mailbox in $ Total cost in $ Variable cost - Operating cost to Company Y 12.2 47153 - Virus protection license 1.8 6957 Total Variable cost 54110 Fixed Cost - Computer hardware 10382 Total Fixed cost 10382 Total Cost 64492 If X Company decides to outsource its email function , its monthly profit will rise by = $69975 - $64492 = $5483
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