You run a company that sells specialty international foods. Sales are made at the Companys 5 retail locations in the greater Boston area as well as internet sales delivered to customers elsewhere in the United States. All marketing activities are developed and executed by 3 full-time employees under the supervision of the Companys Vice President of Marketing. The Company projects its sales to total $140,000 per month during 2022.

Monthly costs of the Marketing Department for 2022 are expected to include the following:

• Salaries & Wages $37,500 (3 employees & Vice President of Marketing)
• Advertising:
  • Pay per click advertising 5% of sales
  • Print advertising $2,500 per month
• Rent $5,000

The Company has received a proposal from a 3^rd party offering to outsource the Marketing Department. The 3^rd party is proposing a fee of 25% of sales to handle all aspects of the Companys Marketing function. The Company would avoid all salaries & wages and advertising costs of the Marketing Department if it accepted the proposal, except for the salary of the Vice President of Marketing who would continue with the Company with a monthly salary of $12,500.

Rent expense noted above reflects the amount allocated to the Marketing Department based on the square footage it uses at the Companys headquarters. It could sub-lease this space and earn $3,000 of monthly rental income if the Marketing Department is outsourced.

Requirements:

Calculate the financial impact if the Company were to accept the 3^rd partys proposal to outsource the Marketing Department during 2022, noting the impact on monthly earnings (increase or decrease and the amount) and show you computations to support your answer.