Computer Company's payroll accountant has submitted her resignation and will be leaving the company in two weeks. The company must decide if it will hire a replacement or outsource the payroll position.

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The current employee earns a salary of $41,000. Medical insurance, employer payroll taxes, and contributions to the pension plan for this position cost $7,500. The company has already invested $24,000 in payroll software. Required annual updates to remain in compliance with all state and federal laws are $475. The company also spends $1,700 per year in professional development for this position to ensure the employee stays up-to-date with payroll changes. Pithe Computer Company pays its employees weekly. Payroll Professionals will process the company's weekly payroll for $1,200 per week. This fee also includes preparing all necessary payroll tax returns, reports, and W-2s.

1.	Prepare a differential analysis to determine if Pithe Computer Company should replace the employee or outsource the payroll function.
2.	What other factors should Pithe Computer Company consider in making this decision?

Requirement 1. Prepare a differential analysis to determine if

Pithe

Computer Company should replace the employee or outsource the payroll function. (Complete only the necessary answer boxes. Do not enter a "0" for any zero balances. Assume a 52-week year. For any item and/or total where the cost of outsourcing payroll exceeds the cost of replacing the employee, enter difference with a minus sign or parentheses.)

	Replace	Outsource	Difference
Annual Payroll Costs	Employee	Payroll	(Replace - Outsource)
Total

Pithe should outsource the payroll OR replace the employee because it results in the lesser amount of gross revenues. OR it results in the lesser amount of total relevant costs. OR it results in the greater amount of gross revenues. OR it results in the greater amount of total relevant costs.

Requirement 2. What other factors should Pithe Computer Company consider in making this decision?

A. The company should consider whether the payroll processing company can provide reliable and timely service.

B. The company should consider whether outsourcing the function transfers the liability of remaining in compliance with all state and federal regulations to the payroll processing company.

C. As long as management chooses the option that results in the greater bottom line (income), the company will benefit.

D. Both A. and B.

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