This analysis requires you to demonstrate your skills in using cost-volume profit analysis to make decisions.

The use of CVP analysis to decide whether to outsource a contract Recycl-able has a large contract with the local education authority to collect and recycle all recycling from the primary schools in the area. The authority has just informed the company that, due to the recent housing expansion, three new primary schools will need servicing this year. Recycl-able does have the option of outsourcing this additional work to a competitor (Paperwork) who has undertaken work for the company before. You need to perform the required CVP analysis (using the data below) to decide whether the company should service the three new schools in-house or outsource the work. In addition, the Finance Director has asked that you give a brief description of why CVP analysis can be used in this scenario and discuss the limitations of the process. Your discussion should also consider what non-financial factors should be considered as a part of the decision. Recycl-able Data:

Additional work data: Additional production cycles required per new school 150 Additional revenue per school 75,000 Total Direct Labour Hours required per cycle 10 Direct Labour cost per hour 20 Indirect Labour cost 100,000 Direct Material costs per labour hour 10 Variable costs per labour hour 5 Interest Payable 250 Fee payable to Paperwork (per cycle) 300