Jumbo Chinese Restaurant operates a small laundry facility to launder the uniforms, tablecloths, and other linens used by its restaurant chain. Jumbo’s laundry operation occupies space in an industrial area close to the company’s home office and its largest restaurant.

Jumbo is considering using a laundry service to perform the laundering needed by the company. :

Jumbo’s $180,000 administrative expense is allocated based on the number of employees. Jumbo employs 90 people. Information about the laundry facilities follows:

An outside laundry service has offered to provide Jumbo’s laundering services for $50,000 per year. The fee is guaranteed for one year. If the offer is accepted, Jumbo will scrap the laundry equipment and close down its laundry operation completely.
Required: The president of Jumbo has asked you to prepare a report that details the qualitative and quantitative factors that should be considered in making the decision about whether to close the laundry operation. Your report should discuss the relevant qualitative and quantitative factors for each alternative and include a relevant cost schedule. Your report should conclude with a wellsupported recommended course of action.

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Direct cost information: Wages for two employees Cost of equipment Original estimated useful life of equipment Estimated remaining useful life of equipment Building rent per year Utilities Miscellaneous cost Indirect cost information: Administrative expense $38,000 $7,500 5 years 1 year $3,000 $2,000 $1,500 $4,000