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Jenson College provides its own housekeeping services. The College director would like to outsource this service and has found a company that will provide the
Jenson College provides its own housekeeping services. The College director would like to outsource this service and has found a company that will provide the service for $48 per hour. The following information has been collected about the cost per hour to the college for performing its own housekeeping services:
Identify relevant costs in outsourcing decision.
Cost per hour of service: | ||
Cleaning supplies | $4 | |
Direct labour costs | $30 | |
Variable overhead | $1 | |
Total hours of housekeeping services per year | 3,000 | |
Total fixed overhead | $50,000 |
- Determine whether Jenson College should outsource housekeeping, assuming that 50% of fixed costs can be eliminated if the service is outsourced. Provide calculations to support your answer.
$(14,000)
- b. At what level of service (in hours) would Jenson generally be indifferent between providing housekeeping services or outsourcing them, assuming that 50% of fixed costs can be eliminated?
1,923 hours
- c. Describe two qualitative factors that might affect this outsourcing decision.
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