1.
Fifth Avenue designs is studying whether to outsource its Public
Relations (P/R) activities. Salaried professionals who earn $200,000
would be terminated; in contrast, administrative assistants who earn
$50,000 would be transferred elsewhere in the organization.
Miscellaneous departmental overhead (e.g., supplies, copy charges,
overnight delivery) is expected to decrease by $20,000, and $35,000 of
corporate overhead, previously allocated to Public Relations, would be
picked up by other departments. If Fifth Avenue can secure needed
P/R services locally for $230,000, how much would the company
benefit by outsourcing?
Solution
B. $35,000..
Can you tell me how to work this problem.
Cost saved
Salaried professionals who earn $390,000 would be terminated;
Miscellaneous departmental overhead is expected to decrease by $30,000, and $25,000 of
corporate overhead.
Total Saving = 390,000 + 30,000 + 25,000
= 445,000
Cost of outsourcing = $410,000
Saving = $35,000