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

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4)X Company is considering outsourcing its email system. Total costs related to last month's in-house email operation, when there were 3,830 employee mailboxes, were as follows:

$13,443 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 $14.00 per mailbox. Next year, X Company estimates that 4,135 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.]

5) At the end of the year, a company offered to buy 4,830 units of a product from X Company for $12.00 each instead of the company's regular price of $19.00 each. The following functional income statement is for the 64,900 units of the product that X Company has already made and sold to its regular customers:

Fixed cost of goods sold for the year was $120,065, and fixed selling and administrative costs were $75,933. The special order product has some unique features that will require additional material costs of $0.85 per unit and the rental of special equipment for $3,000.

(a) Profit on the special order would be

(b). Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 2% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase by

6) The following information is for X Company's two products, A and B:

(a) If X Company drops Product A because it shows a loss, what will be the effect on firm profits?

(b) Assume that if X Company drops Product A, it can use the vacant space to increase sales of Product B by $37,200, but $3,000 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of?

7) X Company is planning to drop a department that has shown a loss over the past few years. Its accountant estimates that the savings from dropping the department will be $30,000 a year for the next 7 years. The accountant also believes that the company will be able to immediately sell some equipment that was used in the department for $18,000. Assuming a discount rate of 5%, what is the net present value of dropping the department?

8) X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:

The current and new equipment will last for 6 years. If X Company replaces the current equipment, what is the approximate internal rate of return (enter your rate as a decimal; so 1% would be .01)

Variable costs:     Email license $19,916     Virus protection license 6,128     Miscellaneous 19,916 Fixed costs     Computer hardware 29,874

Explanation / Answer

If they outsource :
variable cost (remain)
Email liocense= 4135*14=$57,890
virtual protect license=6128
Fixed costs= 13443
total=77463

If last year is continued the per mail cost is
=(19916+19916)/3830=$13 per mail
new cost=13*4135=$53755
virtual protect license=6128
Hardware=29874
total=89757

Reduction in cost=89757-77463=$12,294

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