Question

Q11-4: Last Group has a rental cost of €25,000 per month with a four-year lease term. Casual staff are employed on a weekly basis to carry out telephone sales. The cost of casual staff is €12,000 per month and telephone call costs are €5,000 per month. An offshore call central point has offered to carry out the telephone sales activity from its own premises and using its own staff and telephone services for a fixed payment of €15,000 per month. Should Last Group accept or reject the outsourcing proposal from the call central point? Please show all calculations.

Q12-1: An accounting consultant is paid a salary of £80,000 per annum and his employer pays up to of 18% of base salary for medical, life, and dental insurance. His employer also contributes toward a retirement plan at a maximum of 8% of base salary. Assuming the consultants works 250 days per year and is productive for 81% of that time, what is his daily cost rate?

Answer 1

1. Relevant cost is expense which we consider while making decision. In this case lease payment of 25000$ is sunk cost as it predetermined for 4 years whether you use land or not you have to pay for lease rent therefore it is sunk cost and sunk cost is not considered in making decision. Therefore in house cost is ( 12000+5000=17000) per month as compared to outsource 15000$ so outsourcing will result in saving of 2000$ therefore company should accept the outsourcing.