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 3,645 employee mailboxes, were as follows: Variable costs: Email license $14,580 Virus protection license 5,103 Miscellaneous 10,206 Fixed costs Computer hardware 40,824 $17,554 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 $12.30 per mailbox. Next year, X Company estimates that 4,130 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

Explanation / Answer

EXISTING POSITION-

Evaluation of Offer of Y Co.

Cost per mailbox under New offer $17.79 is higher than cost per mailbox $17.12 under own system. hence offer should not be accepted.

If X company decide to outsource its email function to Y Company instead of managing the service internally

then Profit per month will decreased by $2743.

Varriable Cost Email license $14,580.00 Virus protection license $5,103.00 Miscellaneous $10,206.00 Fixed Cost Computer hardware $40,824.00 Total Cost $70,713.00 Mail Box per Month 4130 Cost per Email Box $17.12

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