Determine whether Splish College should outsource housekeeping, assuming that 50% of fixed costs can be eliminated if the service is outsourced. (If an amount reduces the net income then enter with a negative sign preceding the number, eg-15,000 or parenthesis, eg (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)
Determine whether Splish College should outsource housekeeping, assuming that 50% of fixed costs can be eliminated if the service is outsourced. (If an amount reduces the net income then enter with a negative sign preceding the number, eg-15,000 or parenthesis, eg (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Splish College provides its own housekeeping services. The College director would like to outsource this service and has found a
company that will provide the service for $49 per hour. The following information has been collected about the cost per hour to the
college for performing its own housekeeping services
Cost per hour of service:
Cleaning supplies
$3
Direct labour costs
$27
Variable overhead
$1
Total hours of housekeeping services per year
3,040
Total fixed overhead
$55,080
(a)
Your answer is partially correct
Determine whether Splish College should outsource housekeeping, assuming that 50% of fixed costs can be eliminated if the
service is outsourced. (If an amount reduces the net income then enter with a negative sign preceding the number, eg-15,000 or
parenthesis, eg (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving
this problem.)
amber of hours:
040
In-house
eaning supplies
rect labour
iriable overhead
ked costs
irchase price
tal cost
Splish College
should not
outsource the services.
Outsource
Net Income
Increase (Decrease)
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