Jenson College provides its own housekeeping services. The College director would like to outsource this ser- vice, and has found a company that will provide the service for $48 per hour. The following information has been collected about the cost per hour to the college for performing its own housekeeping services:
Cost per hour of service:
Cleaning supplies..............................................$4
Direct labour costs...........................................$30
Variable overhead.............................................$1
Total hours of housekeeping services per year.........3,000
Total fixed overhead....................................$50,000
Instructions
(a) Determine whether Jenson College should outsource housekeeping, assuming that 50% of fixed costs can be eliminated if the service is outsourced. Provide calculations to support your answer.
(b) At what level of service (in hours) would Jenson generally be indifferent between providing housekeeping services or outsourcing them, assuming that 50% of fixed costs can be eliminated?
(c) Describe two qualitative factors that might affect this outsourcing decision.