X Company is considering outsourcing its email system. Total costs related to la

Question

X Company is considering outsourcing its email system. Total costs related to last month's in-house email operation, when there were 3,795 employee mailboxes, were as follows:

Variable costs:

Email license $19,734

Virus protection license 7,590

Miscellaneous 8349

Fixed costs

Computer hardware 33,396

$14,360 of the computer hardware costs were common costs that will continue even if the email system is abandoned, and X Company will still need to pay for the virus protection license. Y Company has offered to operate an email system for X Company for $14.50 per mailbox. Next year, X Company estimates that 4,285 mailboxes will be required per month.

By how much will X Company's monthly profits change if they decide ti outsource its email function to Y Company instead of managing the service internally? [A positive number means that make costs are more than buy costs; a negative number means that make costsare less than the buy costs.]

Please show the work step by step. I will be appreciated thanks

Explanation / Answer

Statement of Incremental Profit Email system is Outsourced Amount Payment to Y Company (4285 Mailboxes X $14.50)              62,132.50 Savings of Variable Costs: Email License (19734 / 3795 X 4285)               (22,282.00) Misc. Exp. (8349/3795 X 4285)                 (9,427.00)            (31,709.00) Savings of Fixed Costs (33396 - 14360)            (19,036.00) Incremental Cost / (Savings)              11,387.50 The Monthly profits will be decreased by 11387.50 per month, if the company decides to outsource the Email accounts to Company Y.

Related Questions

Navigate

• Browse (All)
• Browse X
• Subjects

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