X Company is considering outsourcing its email system. Total costs related to la
ID: 2463358 • 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 3,975 employee mailboxes, were as follows:
$18,190 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 $12.10 per mailbox. Next year, X Company estimates that 4,455 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.]
Explanation / Answer
Profit change on outsourcing instead of managing the service internally = 79653-80115 =-462
Make
last mont (3975 mail boxes)
4455 mail boxes
Cost
No of mail boxes
Per mail box
Cost
Variable costs:
Email license
16,695
3975
4.2
18711
Virus protection license
7,155
3975
1.8
8019
Miscellaneous
10,335
3975
2.6
11583
Fixed costs
Computer hardware
41,340
41,340
Total
75525
79653
Outsource
Cost
No of mail boxes
Per mail box
Outsourcing cost
53905.5
4455
12.1
Virus protection license
8019
4455
1.8
Computer hardware
18190
80115
Make
last mont (3975 mail boxes)
4455 mail boxes
Cost
No of mail boxes
Per mail box
Cost
Variable costs:
Email license
16,695
3975
4.2
18711
Virus protection license
7,155
3975
1.8
8019
Miscellaneous
10,335
3975
2.6
11583
Fixed costs
Computer hardware
41,340
41,340
Total
75525
79653
Outsource
Cost
No of mail boxes
Per mail box
Outsourcing cost
53905.5
4455
12.1
Virus protection license
8019
4455
1.8
Computer hardware
18190
80115
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