Question

Note that the question does not ask for the total make costs and the total buy costs but instead asks for the difference between the two. ______________________________________________________ BKF.com provides banks access to sophisticated financial information and analysis via the web, enabling them to instantly evaluate both personal and commercial loan applications. To better focus on its client services, BKF.com is considering outsourcing some of its internal functions. Its controller, Jenny Lee, suggests starting with the company's internal email system. She recently attended a conference and learned that GTE and NBC outsource their email function to companies such as Google and Yahoo. Lee began her analysis by identifying the total costs related to last month's in-house email operation, when there were 3,500 employee mailboxes: Variable Costs Email license $14,000 Virus protection license 7,000 Miscellaneous 19,600 Fixed Costs -- Computer hardware 29,400 Total costs $70,000 Lee analyzed the computer hardware costs further and determined that: 45% were allocated costs that will continue even if the email system is abandoned. 19% were non-personnel direct costs that will be avoided if the email system is abandoned. 36% were monthly salaries for two, equally paid interns who worked only on the email system. Mail.com, a leading provider of internet messaging outsourcing services, has offered to host BKF.com's email function for $12.50 per mailbox. BKF.com will still need to pay for the virus protection software, and it will need one of the interns to maintain the virus protection and quarantine suspicious emails. Also, a company has agreed to pay BKF.com $4,400 a month to use the computer storage space that will become available if BKF.com outsources its email function. Finally, Lee estimates that 3,650 mailboxes will be required per month next year. REQUIRED By how much will BKF.com's monthly profits change if they decide to outsource its email function to Mail.com instead of managing the service internally? [Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number.]

Answer 1

	Make	Buy	Increase (Decrease) in profits
Email license (3650 x $4)	14600	0	14600
Virus protection license (3650 x $2)	7300	7300	0
Miscellaneous (3650 x $5.60)	20440	0	20440
Computer hardware - Allocated costs	13230	13230	0
Computer hardware - Non-personnel direct costs	5586	0	5586
Computer hardware - Salaries	10584	5292	5292
Outsourcing costs (3650 x $12.50)	0	45625	-45625
Opportunity cost of computer storage space usage	4400	0	4400
Total Monthly Cost $	76140	71447	4693

BKF.com's monthly profits will increase by $4,693 if they decide to outsource its mail function to Mail.com instead of managing the service internally.

Calculations:

Variable cost per employee mailbox	$
Email license ($14000/3500)	4.00
Virus protection license ($7000/3500)	2.00
Miscellaneous ($19600/3500)	5.60