Each year, Sunshine Motos surveys 7,500 former and prospective customers regardi
ID: 2642445 • Letter: E
Question
Each year, Sunshine Motos surveys 7,500 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering outsourcing the survey to Global Associates, who have offered to conduct the survey and summarize results for $30,300.Craig Sunshine, the president of Sunshine Motors, believes that Global will do a higher-quality job than his company has been doing, but is unwilling to spend more than $10,000 above the current costs. The head of bookkeeping for Sunshine has prepared the following summary of costs related to the survey in the prior year.
Mailing $16,400
Printing (done by Lester Print Shop) $4,500
Salary of Pat Fisher, part-time employee who stuffed envelopes and summarized data when surveys were returned
(100 hours X $15) $1,500
Share of depreciation of computer and software used to track survey responses and summarized results. $1,100
Share of electricity/phone/etc. based on square feet of space occupied by Pat Fisher vs. entire company. $500
REQUIRED: What is the incremental cost of going outside versus conducting the survey as in the past?
Explanation / Answer
Total cost of conducting the survey inhouse = Mailing + Printing + Salary of employess + depreciation of computers + share of electricity and phone bills
Total Cost = $16,400 + $ 4,500 + $ 1,500 + $ 1,100 + $500
Total cost of conducting survey inhouse = $ 24,000
Incremental costs = Cost of outsourcing the survey - Cost of conducting the survey inhouse
Incremental costs = $30,300 - $24,000
Incremental costs = $6,300
The president is willing to spend upto $10,000 extra on outsurcing the work. The incremental cost is $6,300 much within the limits. The company can go ahead with outsourcing the survey and get better quality of work.
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