Tim Urban, owner/manager of Urban’s Motor Court in Key West, is considering outs

Question

Tim Urban, owner/manager of Urban’s Motor Court in Key West, is considering outsourcing the daily room cleanup for his motel to Duffy’s Maid Service. Tim rents an average of 50 rooms for each of 365 nights (365 × 50 equals the total rooms rented for the year). Tim’s cost to clean a room is $12.50. The Duffy’s Maid Service quote is $18.50 per room plus a fixed cost of $25,000 for sundry items such as uniforms with the motel’s name. Tim’s annual fixed cost for space, equipment, and supplies is $61,000. Which is the preferred process for Tim, and why?

Explanation / Answer

Tim Urban inhouse cost:

Fixed Cost= 61000

Variable cost= 12.50*365*50= 228125

Total cost= FC + VC= 288125

Tim Urban outsource cost:

Fixed Cost= 25000

Variable cost= 18.50*365*50= 337625

Total cost= FC + VC= 362625

Tim should do cleaning inhouse and do not outsource it to Duffy Service

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.