Big State University (BSU) is considering whether or not itshould outsource its housekeeping service. Currently, BSUemploys 400 housekeepers at an average annual wage of $23,000plus another 39 percent for fringe benefits. Annual fixed costsassociated with housekeeping are $1,278,800.Eric’s Efficient Cleaners (EEC) will provide similarhousekeeping for a fixed annual cost of $7,500,000 plus avariable cost of $20,000 per housekeeper required. Because Ericuses state-of-the-art equipment and well-trained employees,his company would need only 80 percent of the current BSUhousekeeper staff (or 320 housekeepers).(a) Calculate the annual cost of BSU using its currenthousekeeping staff.(b) Calculate the annual cost if BSU lets EEC do thehousekeeping.(c) Find the indifference point for the two alternatives
Big State University (BSU) is considering whether or not it
should outsource its housekeeping service. Currently, BSU
employs 400 housekeepers at an average annual wage of $23,000
plus another 39 percent for
associated with housekeeping are $1,278,800.
Eric’s Efficient Cleaners (EEC) will provide similar
housekeeping for a fixed annual cost of $7,500,000 plus a
variable cost of $20,000 per housekeeper required. Because Eric
uses state-of-the-art equipment and well-trained employees,
his company would need only 80 percent of the current BSU
housekeeper staff (or 320 housekeepers).
(a) Calculate the annual cost of BSU using its current
housekeeping staff.
(b) Calculate the annual cost if BSU lets EEC do the
housekeeping.
(c) Find the indifference point for the two alternatives
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