Cal’s Carpentry is considering outsourcing its accounts receivable function. Currently, Cal employs two full-time clerks and one parttime clerk to manage accounts receivable. Each full-time clerk has an annual salary of $36,000 plus fringe benefits costing an additional 30%

of the salary. The part-time clerk makes $18,000 per year and has no fringe benefits. Total salary plus fringe cost is $111,600. Cal estimates that each account receivable incurs a $10 variable cost. The Small Business Accounts Receivables Group (SBARG) specializes in handling accounts receivable for small- to medium-size companies. Doris Roberts from SBARG has offered to do the accounts receivable for Cal’s Carpentry at a fixed cost of $75,000 per year plus $30 per account receivable. Next year, Cal expects to have 2,000 accounts receivable.

a. Calculate the cost for Cal’s Carpentry to continue doing accounts receivable in-house.

b. Calculate the cost for Cal’s Carpentry to use SBARG to handle the accounts receivable.

c. If the fixed annual cost offered by SBARG is nonnegotiable but it is willing to negotiate the variable cost, what variable cost from SBARG would make Cal indifferent to the two options?

d. What other alternatives might Cal consider in terms of his current staffing for accounts receivable?

e. What additional criteria should Cal consider before outsourcing the accounts receivable?