Torrey Pines is studying whether to outsource its Human Resources (H/R) activiti

Question

Torrey Pines is studying whether to outsource its Human Resources (H/R) activities. Salaried professionals who earn $440,000 would be terminated; in contrast, administrative assistants who earn $138,000 would be transferred elsewhere in the organization. Miscellaneous departmental overhead (e.g., supplies, copy charges, overnight delivery) is expected to decrease by $40,000, and $23,000 of corporate overhead, previously allocated to Human Resources, would be picked up by other departments. If Torrey Pines can secure needed H/R services locally for $470,000, how much would the company benefit by outsourcing?

Explanation / Answer

Hi,

Please find the answer as follows:

Savings = 440000 (Salary of terminated employees) + 40000 (Decrease in Administrative Costs) = 480000

Less Cost of Outsourcing = 470000

Net Benefit = 10000

Thanks.

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