Each year, Toyota Motors surveys 7,500 former and prospective customers regardin

Question

Each year, Toyota Motors surveys 7,500 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering outsourcing the survey to Global Associates, who have offered to conduct the survey and summarize results for $30,300. Taylor Toyota, the president of Toyota Motors, believes that Global will do a higher-quality job than his company has been doing, but is unwilling to spend more than $10,000 above the current costs. The head of bookkeeping for Toyota has prepared the following summary of costs related to the survey in the prior year.

Mailing

$16,800

Printing (done by Lester Print Shop)

4,500

Salary of Pat Fisher, part-time employee who stuffed envelopes and summarized data when surveys were returned (100 hours X $15)

1,500

Share of depreciation of computer and software used to track survey responses and summarized results

1,100

Share of electricity/phone/etc. based on square feet of space occupied by Pat Fisher vs. entire company

500

Total

$23,600

Required:

What is the incremental cost of going outside versus conducting the survey as in the past?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Mailing = 16800

Printing = 4500

Salary of Pat Fisher = 1500

Total Incremental Cost for the Business = 16800 + 4500 + 1500 = 22800

Incremental Cost if Bought from Outside = Total Cost of Outsourcing - Total Incremental Cost for the Business = 30300 - 22800 = $7500

Answer is $7500.

Thanks.

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