Each year, Sunshine Motos 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 $30,000.Craig Sunshine, the president of Sunshine 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 Sunshine has prepared the following summary of costs related to the survey in the prior year.
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
REQUIRED: What is the incremental cost of going outside versus conducting the survey as in the past?
In calculating the relevant costs of surveying by self
Depreciation will be ignored as it will be incurred in any case
Other shares of electricity and phone will also be ignored as it will also be incurred in any case for the company.
Hence relevant costs of surveying by self = Mailing + Printing + Salary of part time worker
= 16200 + 4500 + 1500
= $ 22,200.00
Incremental cost of going outside = 30000 - 22200 = $ 7800.00
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