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Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $221,800. An internally prepared report summarizes the Payroll Department's annual operating costs as follows: Supplies Payroll clerks' salaries Payroll supervisor's salary Payroll employee training expenses Depreciation of equipment Allocated share of common building operating costs Allocated share of common administrative overhead Total annual operating cost $ 31,800 121,800 59,800 11,800 21,800 16,800 29,800 $ 293,600 EDC currently rents overflow office space for $37,800 per year. If the company closes its Payroll Department, the employees occupying the rented office space could be brought in-house and the lease agreement on the rented space could be terminated with no penalty. If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the company's Human Resource Management Department. As a result of this transfer, the company would discontinue its efforts to hire a new Human Resource Manager that it expected to pay an annual salary of $57,800. The Payroll Department's equipment would be transferred to other departments within the company to replace outdated equipment that would be recycled for zero salvage value. Financial advantage of outsourcing Required: What is the financial advantage (disadvantage) of outsourcing the Payroll Department?

Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $221,800. An internally prepared report summarizes the Payroll Department's annual operating costs as follows: Supplies Payroll clerks' salaries Payroll supervisor's salary Payroll employee training expenses Depreciation of equipment Allocated share of common building operating costs Allocated share of common administrative overhead Total annual operating cost $ 31,800 121,800 59,800 11,800 21,800 16,800 29,800 $ 293,600 EDC currently rents overflow office space for $37,800 per year. If the company closes its Payroll Department, the employees occupying the rented office space could be brought in-house and the lease agreement on the rented space could be terminated with no penalty. If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the company's Human Resource Management Department. As a result of this transfer, the company would discontinue its efforts to hire a new Human Resource Manager that it expected to pay an annual salary of $57,800. The Payroll Department's equipment would be transferred to other departments within the company to replace outdated equipment that would be recycled for zero salvage value. Financial advantage of outsourcing Required: What is the financial advantage (disadvantage) of outsourcing the Payroll Department?

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter5: Activity-based Costing And Management
Section: Chapter Questions
Problem 57P: Customers as a Cost Object Morrisom National Bank has requested an analysis of checking account...
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Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $221,800. An internally prepared report summarizes the Payroll Department's annual operating costs as follows: Supplies Payroll clerks' salaries Payroll supervisor's salary Payroll employee training expenses Depreciation of equipment Allocated share of common building operating costs Allocated share of common administrative overhead Total annual operating cost $ 31,800 121,800 59,800 11,800 21,800 16,800 29,800 $ 293,600 EDC currently rents overflow office space for $37,800 per year. If the company closes its Payroll Department, the employees occupying the rented office space could be brought in-house and the lease agreement on the rented space could be terminated with no penalty. If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the company's Human Resource Management Department. As a result of this transfer, the company would discontinue its efforts to hire a new Human Resource Manager that it expected to pay an annual salary of $57,800. The Payroll Department's equipment would be transferred to other departments within the company to replace outdated equipment that would be recycled for zero salvage value. Required: What is the financial advantage (disadvantage) of outsourcing the Payroll Department? Financial advantage of outsourcing
Transcribed Image Text:Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $221,800. An internally prepared report summarizes the Payroll Department's annual operating costs as follows: Supplies Payroll clerks' salaries Payroll supervisor's salary Payroll employee training expenses Depreciation of equipment Allocated share of common building operating costs Allocated share of common administrative overhead Total annual operating cost $ 31,800 121,800 59,800 11,800 21,800 16,800 29,800 $ 293,600 EDC currently rents overflow office space for $37,800 per year. If the company closes its Payroll Department, the employees occupying the rented office space could be brought in-house and the lease agreement on the rented space could be terminated with no penalty. If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the company's Human Resource Management Department. As a result of this transfer, the company would discontinue its efforts to hire a new Human Resource Manager that it expected to pay an annual salary of $57,800. The Payroll Department's equipment would be transferred to other departments within the company to replace outdated equipment that would be recycled for zero salvage value. Required: What is the financial advantage (disadvantage) of outsourcing the Payroll Department? Financial advantage of outsourcing
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