Company A maintains an accounts receviale department that currentlyemploys 8 peo

Question

Company A maintains an accounts receviale department that currentlyemploys 8 people. They are interested in doing an activityanalysis because an outside firm has offered to take over a protionof the activities currently handled by the accounts recevialedepartment. the 4 main activites handled by the departmentare 1. billing and recording payments, 2. customer serviceactivities, 3. fianncial reporting and analysis, and 4. collectingdelinquent accounts.    The salaries paid to thedepartment's employees are as follows: manager                1@ $60,000 per year..............................$60,000 clerks                    5@ $30,000 per year..............................150,000 accounts specialists 2@ $40,000 peryear............................... 80,000 Total                                                      ..............................$ 290,000    The manager spends an equal amount of timesupervising the 4 main activities. The clerks spend half thetime on billing and recording payments, with the remaining timedivided between reporting activities and customer service. thespecialists spend half the time on delinquent account activitiesand the rest of the time is split between finaincial analysisactivities and customer service activities that the clerks aren'tqualified to do.    An outside Company B has proposed thatit can perform all the activities related to collecting thedelinquent accounts for $50,000 per year. Company b claimsthey can save Company A $30,000 because the $80,000 in salariespaid to the specialists who handle delinquent accounts can beeliminated. If the contract is accepted, it's estimated themanager would need to devote a quarter of the time dealing withCompany B employees. ** Should Company A accept Compnay B's offer to take over itsdeliquent account activites? manager                1@ $60,000 per year..............................$60,000 clerks                    5@ $30,000 per year..............................150,000 accounts specialists 2@ $40,000 peryear............................... 80,000 Total                                                      ..............................$ 290,000    The manager spends an equal amount of timesupervising the 4 main activities. The clerks spend half thetime on billing and recording payments, with the remaining timedivided between reporting activities and customer service. thespecialists spend half the time on delinquent account activitiesand the rest of the time is split between finaincial analysisactivities and customer service activities that the clerks aren'tqualified to do.    An outside Company B has proposed thatit can perform all the activities related to collecting thedelinquent accounts for $50,000 per year. Company b claimsthey can save Company A $30,000 because the $80,000 in salariespaid to the specialists who handle delinquent accounts can beeliminated. If the contract is accepted, it's estimated themanager would need to devote a quarter of the time dealing withCompany B employees. ** Should Company A accept Compnay B's offer to take over itsdeliquent account activites?

Explanation / Answer

Company A currently spends  55k annually for collecting delinquent accounts, 15k of the Manager's salay and 40k of the specialists . If Company B is given the charge of collection, the 15k of the manager's salary will be reallocated to supervisiing Company B employees. So there is no real savings on the manager's cost. 40k will be the cost you need to compare with the offer of 55k.

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