Question

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.

Mailing   $16,200                                                                     

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?

Answer 1

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

• Salary of part time worker is to be included since if it is outsourced then the part time worker will be relinquished of his duties

= 16200 + 4500 + 1500

= $ 22,200.00

Incremental cost of going outside = 30000 - 22200 = $ 7800.00

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