Dallas College is considering outsourcing grounds maintenance. In this regard, D
ID: 2664303 • Letter: D
Question
Dallas College is considering outsourcing grounds maintenance. In this regard, Dallas has received a bid from Highline Grounds Maintenance for $306,030 per year. Highline states that its bid will cover all services and planting materials required to “keep Dallas’ grounds in a condition comparable to prior years.” Dallas’ cost for grounds maintenance in the preceding year were $316,970 as follows:Salary of three full-time gardners $200,420
Plant Materials $82,390
Fertilizer $8,230
Fuel $9,710
Depreciation of tractor, mowers, and other miscellaneous equipment $16,220
Total $316,970
If Dallas College outsources maintenance, it will be able to sell equipment for $30,990 and the three gardeners will be laid off.
Analyze the one-year financial impact of outsourcing grounds maintenance.
$___________ (This does not equal 41,930 and previous informed)
How will savings in the second year differ from those in year 1
$ _______________ (This does not equal 10,940 as previous informed)
Explanation / Answer
If grounds maintenance is outsourced then equipment cost would be sunk cost :
1st Year
Salary of three full-time gardners $200,420 Avoidable cost
Plant Materials $82,390 Avoidable cost
Fertilizer $8,230 Avoidable cost
Fuel $9,710 Avoidable cost
Depreciation 0 Sunk cost
Total avoidable cost $300,750
Sale of equipment $30,990
$331,740
Cost of outsourcing $306,030
Savings $25,710
==========
2nd year
Total avoidable cost $300,750
Cost of outsourcing $306,030
Loss -$5,280
==========
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