A U.S. hospital system is considering outsourcing a portion of its diagnostic wo

Question

A U.S. hospital system is considering outsourcing a portion of its diagnostic workload to a medical
consulting firm based in India. In the United States these diagnostic services, done internally by the
hospital system, cost $700,000 per year. The consulting firm would charge $400,000 per year for the same
workload. In addition, the hospital system expects to spend $50,000 per year in managerial oversight,
$8,000 per year administering the contract, and $125,000 to initially train the consulting firm’s staff
(amortized over five years). What is the total annual outsourcing cost during the first five years?
A. $400,000.
B. $483,000.
C. $578,000.
D. None of the above.

Explanation / Answer

Consulting firm charges $400,000 a year.

Managerial Oversight- 50,000 a year

Administering Contract-8000 a year

Training Cost 125000 fo 5 Years, 25000 a year.

At the outset, if no other calculation/formula should be involved, then the plain vannila answer would be 483000.

If some thing like amort or training needs to be considered, please do let me know, i can do a different way.

But the answers and question somehow does not match. Question asks for TOTAL annual cost for first five years and answers provided are for ONE Year ONLY.

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