Each year, Knight Motors surveys 7,600 former and prospective customers regardin
ID: 341481 • Letter: E
Question
Each year, Knight Motors surveys 7,600 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering outsourcing the survey to RBG Associates, which has offered to conduct the survey and summarize results for $35,000. Craig Knight, the president of Knight Motors, believes that RBG will do a higher-quality job than his company has been doing but is unwilling to spend more than $10,000 above current costs. The head of bookkeeping for Knight has prepared the following summary of costs related to the survey in the prior year:
REQUIRED
What is the incremental cost of going outside vs. conducting the survey as in the past? Will Craig Knight accept the RBG offer?
Mailing $17,500 Printing (done by Lester Print Shop) 6,000 Salary of Pat Fisher, part-time employee who stuffed envelopes and summarized data when surveys were returned (130 hours × $16) 2,080 Share of depreciation of computer and software used to track survey responses and summarize results 1,200 Share of electricity/phone/etc. based on square feet of space occupied by Pat Fisher vs. entire company 600 Total $27,380Explanation / Answer
INCREMNETAL COST OF ACCPTING THE RBG OFFER Offer cost of RBG 35000 Less: Saving in cost mailing 17500 Printing 6000 Salary of part time employee 2080 Incremental cost 9420 As the incremnetla cost is in positive, RBG offer shall not be accepted Note: Depreciation and share of common fixed cost is irrelevant cost for decision.
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