Chapter 3, Problem 3.5EYCT

Accounting

Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $220,800. An internally prepared report summarizes the Payroll Department’s annual operating costs as follows: Supplies $ 30,800 Payroll clerks’ salaries 120,800 Payroll supervisor’s salary 58,800 Payroll employee training expenses 10,800 Depreciation of equipment 20,800 Allocated share of common building operating costs 15,800 Allocated share of common administrative overhead 28,800 Total annual operating cost $ 286,600 EDC currently rents overflow office space for $36,800 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…

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump follows: Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales   $ 410,000 Variable expenses:     Variable manufacturing expenses $ 123,000   Sales commissions 50,000   Shipping 21,000   Total variable expenses   194,000 Contribution margin   216,000 Fixed expenses:     Advertising (for the bilge pump product line) 27,000   Depreciation of equipment (no resale value) 120,000   General factory overhead 38,000*   Salary of product-line manager 113,000   Insurance on inventories 5,000   Purchasing department 49,000†   Total fixed expenses   352,000 Net operating loss   $ (136,000) *Common costs allocated on the basis of machine-hours. †Common costs allocated on the basis of…