Super Clean is a high quality, professional cleaning services for homes and offices in the GTA area. It sells its cleaning services to external customers and also internally to its subsidiary, Clean Freak Co.,which manufactures cleaning products.

Super Clean, however, has restrictions on selling its cleaning services. It can only sell its services to external customers only in situations where excess capacity after the internal needs have been met. Based on the past records, about 80% of Super Clean's orders have been internal and 20% external. It has capacity to provide around 100,000 cleaning hours per year and in 2020, it utilized about 40,000 cleaning hours of capacity. Super Clean's services are priced by cleaning hour and the pricing sheet is included in the additional information section below.

Sylvia, the manager of the Clean Freak Co., is unhappy with the arrangement. She said that she is able to get cleaning done externally by ExtraClean for $25 per hour, compared to the price of $30 per hour that Super Clean is charging. She is trying to convince the CEO of Super Clean, to allow her to outsource cleaning if Super Clean is not willing to bring prices down.

Additional Information

Pricing Sheet

INTERNAL SERVICES

• Direct Materials $5 per cleaning hour
• Direct Labor $15 per cleaning hour
• Variable Overhead $5 per cleaning hour
• Fixed Overhead Allocation $5 per cleaning hour
• Mark-up $0

EXTERNAL SERVICES

• Direct Materials $5 per cleaning hour
• Direct Labor $15 per cleaning hour
• Variable Overhead $5 per cleaning hour
• Fixed Overhead Allocation $5 per cleaning hour
• Mark-up $50 per cleaning hour

Fixed overhead allocation base: DL hours

Capacity: Total capacity of 100,000 testing hours annually as multiple projects can run simultaneously.

QUESTION: Is it optimal for the firm if Sylvia, manager of Clean Freak Co., is allowed to outsource cleaning services? Provide computations to support your answer.