Oakland College is considering outsourcing grounds maintenance. In this regard,

Question

Oakland College is considering outsourcing grounds maintenance. In this regard, Oakland has received a bid from Highline Grounds Maintenance for $304,160 per year. Highline states that its bid will cover all services and planting materials required to "keep Oakland's grounds in a condition comparable to prior years." Oakland's cost for grounds maintenance in the preceding year were $312,510 as follows:

Salary of three full-time gardeners $197,630
Plant materials 85,090
Fertilizer 7,290
Fuel 8,300
Depreciation of tractor, mowers, and other
miscellaneous equipment 14,200
Total $312,510

If Oakland College outsources maintenance, it will be able to sell equipment for $30,150, and the three gardeners will be laid off.

Analyze the one-year financial impact of outsourcing grounds maintenance.

Explanation / Answer

Outsourcing grounds maintenance cost of the current year is less than the preceding year cost. Hence, it is profitable. Oakland has received a bid from Highline Grounds Maintenance for $295,000 per year. Oakland's cost for grounds maintenance in the preceding year were $302,000.The impact of outsourcing grounds maintenance is ($302,000 - 295,000=$7,000)

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