ach year, Sunshine Motos surveys 7,500 former and prospective customers regardin

Question

ach 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 $30,900.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 $16,600 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

Answer

  Incremental costs are the additional costs incurred for an activity. Since the total depreciation and utility costs will not change if the activity is outsourced, these costs should not be included in incremental analysis.

Mailing $16,600
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 × $15) 1,500
Incremental costs for the business = 22,600

30,900 - 22,600 = $8,300 incremental cost of going outside

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