Knowitall has enlisted you to conduct a differential analysis for two business opportunities: outsourcing

culinary services, and acquiring a shuttle. Relevant information for each decision is provided below.

Decision $1$

Knowitall is considering outsourcing the culinary function to a third party, King Kitchens. Under the proposed

agreement, the inn would be responsible for maintaining the facilities. King Kitchens would be responsible for

providing meals to guests, cleaning the facilities, and restaurant staffing. King Kitchens has a monthly fixed fee

of $$85,000,$ and a $$5\mathrm{.}00$ fee per each served meal. Regardless of the decision, customers will be charged an

average of $$25$ per meal. The Mabry Inn$$s current culinary costs are summarized in Table A:

Table A: Current Annual Culinary Costs

$54,880$ estimated annual meals served

Description Cost

Direct materials $$658,560$

Direct labor $$486,018$

Overhead$*$ $$52,000$

Total costs $$1,196,578$

$*$Cost to maintain kitchen and restaurant facilities

If the proposal is accepted, the inn will have no control or input over staffing decisions, hours of operations, or

meal selections. However, King Kitchens has a reputation of exceptional food and service.

Decision $2$

Recent customer surveys indicate that guests desire easier access to the nearby downtown area. The best way to

provide transportation is through a shuttle. The inn has the option to purchase or lease the shuttle. The costs

associated with each option are summarized in Table B:

Table B: Shuttle Costs

Description Leasing Purchasing

Price $$45,000$ per year $$250,000$ purchase price

Est. annual maintenance costs $$0$ $$13,000$

Passenger capacity $30$ passengers $15$ passengers

Useful life $12$ years $12$ years

Instructions

Using the information provided, complete the following

$1.$ Conduct a differential analysis for outsourcing the culinary function