Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $224,000. An internally prepared report summarizes the Payroll Departments annual operating costs as follows:

Supplies$ 34,000Payroll clerks salaries124,000Payroll supervisors salary62,000Payroll employee training expenses14,000Depreciation of equipment24,000Allocated share of common building operating costs19,000Allocated share of common administrative overhead32,000Total annual operating cost$ 309,000

EDC currently rents overflow office space for $40,000 per year. If the company closes its Payroll Department, the employees occupying the rented office space could be brought in-house and the lease agreement on the rented space could be terminated with no penalty.

If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the companys Human Resource Management Department. Asa result of this transfer, the company would discontinue its efforts to hire a new Human Resource Manager for whom it expected to pay an annual salary of $60,000.

The Payroll Departments equipment would be transferred to other departments within the company to replace outdated equipment that would be recycled for zero salvage value.

Required:

What is the financial advantage (disadvantage) of outsourcing the Payroll Department?