Incremental Analysis of Outsourcing Decision [L01, 2] Oakland College is conside
ID: 2466382 • Letter: I
Question
Incremental Analysis of Outsourcing Decision [L01, 2] Oakland College is considering outsourcing grounds maintenance. In this regard, Oakland has received a bid from High- line Grounds Maintenance for $300,000 per year. Highline states that its bid will cover all services and planting materials required to "keep Oakland's grounds in a condition comparable to prior years." Oakland's cost for grounds maintenance in the preceding year were $309.000, as follows: If Oakland College outsources maintenance, it will be able to sell equipment for $30,000, and the three gardeners will be laid off. REQUIRED Analyze the 1-year financial impact of outsourcing grounds maintenance.Explanation / Answer
Saving on the outsourcing the grounds maintenance = variable costs of Plant Materials, Fertilizer, Fuel and Sale of equipment $30000 .
Total cost of outsourcing the grounds maintenance = $300000 Add: laid-off expenses of gardeners $195000 = $495000 Minus: sale of equipment $30000 = Net Cost: $465000
The outsourcing of the grounds maintenance is costing to $465000 in comparison to $309000 prior expenses. So, outsourcing is not beneficial so should not be taken up .