Torrey Pines is studying whether to outsource its Human Resources (H/R) activiti
ID: 2599316 • Letter: T
Question
Torrey Pines is studying whether to outsource its Human Resources (H/R) activities. Salaried professionals who earn $390,000 would be terminated; in contrast, administrative assistants who earn $153,000 would be transferred elsewhere in the organization. Miscellaneous departmental overhead (e.g., supplies, copy charges, overnight delivery) is expected to decrease by $34,000, and $28,000 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 $410,000, how much would the company benefit by outsourcing?
$14,000.
$40,000.
$167,000.
$193,000.
Nothing, as it would be cheaper to keep the department open.
Explanation / Answer
If H/R services are outsourced, $390,000 of salaries to the salaried professionals and $34,000 of miscellaneous departmental overhead can be saved.
Cost of outsourcing the H/R salaries is $410,000.
Therefore, amount saved = $410,000 - $390,000 - $34,000 = $14,000
Note:
Amount earned by administrative assistants, $153,000 and $28,000 of corporate overhead would still be incurred. Therefore, these amounts will not be considered while calculating the amount that can be saved by outsourcing H/R services.