Q4 X Company is considering outsourcing its email system. Total costs related to
ID: 2463364 • Letter: Q
Question
Q4
X Company is considering outsourcing its email system. Total costs related to last month's in-house email operation, when there were 3,595 employee mailboxes, were as follows:
$15,876 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 $11.80 per mailbox. Next year, X Company estimates that 3,730 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.]
Q5
Questions 5 and 6 refer to the following problem:
At the end of the year, a company offered to buy 4,200 units of a product from X Company for $12.00 each instead of the company's regular price of $17.00 each. The following functional income statement is for the 62,500 units of the product that X Company has already made and sold to its regular customers:
Fixed cost of goods sold for the year was $125,000, and fixed selling and administrative costs were $68,750. The special order product has some unique features that will require additional material costs of $0.90 per unit and the rental of special equipment for $3,000.
5. Profit on the special order would be _________?
6. Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 2% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase by _______?
Variable costs: Email license $20,851 Virus protection license 5,752 Miscellaneous 8,628 Fixed costs Computer hardware 34,512Explanation / Answer
Answer to Question 4 Make or Buy Situation All Amounts in $ In case X Company outsources its e-mail function Revenue generated from 3,730 mailboxes @ $ 11.80 per mailbox per month 44014 Costs thereagainst Virus Protection Costs @ $2 per mailbox 7460 Computer Hardware Costs to continue 15876 23336 Increase in Profits of X Company 20678 Answer to Question 5 & 6 All Amounts in $ Per Unit (for 62,500 units) Sales 1062500 17 Cost of goods sold (Fixed) 125000 Cost of goods sold (Variable) 370000 5.92 Gross margin 567500 Selling and administrative costs (Fixed) 68750 Selling and administrative costs (Variable) 86875 1.39 Profit 411875 Special Order Profit Working Sales from Special Order 50400 Cost of Goods Sold (including additional material costs of $ 0.90 per unit) 28644 Contribution Margin 21756 Selling and Administrative Expenses (Variable) 5838 Special Equipment rent 3000 8838 Profit from Order 12918 6. Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 2% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase by 2% of $ 50,400 or $ 1,008.
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