Question

Gizmo, Inc. is a diversified multinational manufacturer. The CEO is considering outsourcing the marketing research function to a global consulting firm. The consulting firm would charge a fixed annual fee of $1,100,000. At present, the costs of operating the marketing research department are $1,315,000 per year, as follows: Director salary   $130,000 Staff salaries    800,000 Travel     105,000 Occupancy       75,000 Consultants       80,000 Executive VP       60,000 Overhead       20,000 Miscellaneous       45,000

The outsourcing firm would perform all duties currently performed by Gizmo
personnel, as well as those of the external consultants. Miscellaneous expenses (supplies, etc.) would be eliminated. Travel costs would decline 90%. Occupancy costs reflect internal charge for office space in corporate headquarters. Cost for Executive VP reflect a charge for 15% of that individual’s time. Overhead is an allocation of general corporate overhead. Required: Discuss the factors that the CEO should consider in deciding whether to outsource the marketing research function

Answer 1

1. Pricing: the pricing is the main component to decision making.check the pricing structure and compare it with current senario. In this case outsource price is $1100000 and current cost is $1315000.

2. Traveli cost will decline at 90%. it means decrease in travel cost is 10% if outsource.

3. occupancy cost will decline because space is not more require if outsource.

4. individual's time for that product eliminated because product is outsource.

5. Miscellaneous of $45000 will be eliminated. so it will be saved.