Lillis, Ltd., is considering AS oats Necrss Toca able tancinena support service in the finance department. Lillis’ cost-management analyst expects annual benefits that include personnel cost sav- Ia | /bo ings of $121,000, facilities savings of $90,000, other support service cost savings of $60,000, and no 9g O Zo loss of service quality. The analyst also estimated annnnuuaall ccoossttss OofF tthhee ddeecciissiioonn ttoo 1incc lude the contract cost bo to DeGama Enterprises of $160,000, severance costs of dismissed personnel of $20,000, and contract a 4Qadministration costs of $12,000. ATI - 199-= +79)

Required 4 9)

a. Based on the quantifiable benefits and costs of the decision, would you recommend that Lillis out- “adsa ria peed EL al source its accounts receivable function? What qualitative factors should Lillis also consider? moral cerv ‘gyility

b. Lillis did outsource the accounts receivable function and measured actual benefits to include personnel cost savings of $82,000, facilities cost savings of $100,000, and support service cost savings of $70,000. Actual costs included $160,000 for the outsourced service, $30,000 for training costs, and $13,000 for contract administration. Furthermore, customer billing complaints were lower than in previous years; sales growth was lower; and employee turnover in other support service areas was higher. Prepare an analysis similar to the one in Exhibit 1-5.

c. On balance, do you agree with the outsourcing decision? Why or why not?