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 3,945 employee mailboxes, were as follows:

$16,664 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 $12.10 per mailbox. Next year, X Company estimates that 4,295 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 Virus protection license Miscellaneous $22,881 6,312 8,679 Fixed costs Computer hardware 34,716

Explanation / Answer

Total monthly profit will increase by $ 442.50, if X Company decides to outsource its email function to Y Company.

Make Buy Total variable cost $ 41,232 Avoidable fixed cost $ 18,052 Cost of outsourcing 51,969.50 Virus protection licence 6,872 Total cost 59,284 58,841.50

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