X Company is considering outsourcing its email system. Total costs related to la
ID: 2462976 • 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 3,655 employee mailboxes, were as follows:
$15,790 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 $13.60 per mailbox. Next year, X Company estimates that 3,795 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
3655 units Per unit 3795 Mailboxes If outsourced Variable Costs Email License 15351 4.2 15939 Virus Protection License 4386 1.2 4554 4554 Miscellaneous 8772 2.4 9108 Price 51612 ( 3795*13.6) Fixed Costs Computer Hardware 35055 35055 15790 Total 63564 64656 71956 The mailboxed should be produced inhouse as the profit will decrease by $ 7300 71956-64656 7300
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