X Company is considering outsourcing its email system. Total costs related to la
ID: 2462468 • Letter: X
Question
X Company is considering outsourcing its email system. Total costs related to last month's in-house email operation, when there were 3,675 employee mailboxes, were as follows:
$12,451 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 $14.30 per mailbox. Next year, X Company estimates that 4,165 mailboxes will be required per month.
By how much will X Company's monthly profits change if they decide to 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 costs are less than the buy costs.]
Please Show Work
Variable costs: Email license $16,170 Virus protection license 5,880 Miscellaneous 12,128 Fixed costs Computer hardware 28,298Explanation / Answer
Answer
The following are the variable cost which will be incurred for 3675 email opeartion =
Email license + Miscellaneous = 16170+12128 = $ 28298 represent the variable cost which is depends on the number of the email operation .
now the variable cost for 4165 email operation will be = (28298 / 3675)* 4165 = $ 32071
other coast for internal email opeartion of 4165 email are = computer hardware which is required for email operation is = 28298 - 12451 = $ 15847
the total cost of the internal operation of 4165 email are = 32071 + 15847 = 47918.10
cost incurred for Y company service = 14.30* 4165 = 59559.50
Difference which the company can save by not outsourcing to Y company = 59559.50 - 47918.10 = 11641.40
or, extra amount to be paid to Y company for email opration is 59559.50- 47918.10 = 11641.40
these extra cost will decrease the profit of the X company by $ 11641.40
Therefore , X company's profit will be reduced by $ 11641.40 if they outsouce the email operation to Y company.
or the profit of the X company will change by - $ 11641.40
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