Each year, Sunshine Motos surveys 7,500 former and prospective customers regardi

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 $16,000 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

Cost of survey = -30300

Add: Cost savings due to outsourcing

Mailing 16000

Printing 4500

Salary of Pat Fisher 1500

(Since he is a part time employee, his services will not be required)

Incremental cost = -$8300

Note: Share of depreciation and electricity will not be saved but reapprotioned among other functions hence not relevant for decision making

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