X Company is considering outsourcing its email system. Total costs related to la
ID: 2463790 • 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 3,700 employee mailboxes, were as follows:
$11,655 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 $11.00 per mailbox. Next year, X Company estimates that 3,975 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
Particulars
Total
Fixed
Variable
Email Service
18,500
18,500
Virus Protection
5,920
4,380
-
Miscellaneous
11,100
11,100
No of Units
3,700
Cost per Unit
3.00
Comaparative Cost statement
Particualars
Own
Outsourcing
Net Benefit
No of Units
3,975
3,975
Variable Cost per unit
3.00
11.00
Total Variable cost
11,925.00
43,725.00
Unavoidable Virus Protection
5,920.00
5,920.00
Fixed Cost
25,900.00
11,655.00
Total Cost
43,745
61,300
(17,555)
Profit will decrease by $17,555 by outsourcing
Particulars
Total
Fixed
Variable
Email Service
18,500
18,500
Virus Protection
5,920
4,380
-
Miscellaneous
11,100
11,100
No of Units
3,700
Cost per Unit
3.00
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