Question

Canyon Trails is studying whether to outsource its Human Resources (H/R) activities. Salaried professionals who earn $390,000 would be terminated; in contrast, administrative assistants who earn $120,000 would be transferred elsewhere in the organization. Miscellaneous departmental overhead (e.g., supplies, copy charges, overnight delivery) is expected to decrease by $30,000, and $25,000 of corporate overhead, previously allocated to Human Resources, would be picked up by other departments. If Canyon Trails can secure needed H/R services locally for $410,000, how much would the company benefit by outsourcing?

Answer 1

Answer:

Benefit:                                  10,000

Explanation:

Salaries terminated:             390,000

decrease in misc overhead   30,000

outsourcing tariff:                (410,000)

Benefit:                                  10,000

The most questions most important issue is how to account the 120,000 assistant and the fixed cost that will be allocate to other department.

The truth is, this are not relevant cost.

As the company would hire this assistant in the near future if the H/R is not outsource as the company won't keep them if they aren't useful.

Also the allocate cost are cost from other operations not related to human resources. So ust be disregard from the calcualtion.

We should consider only the explicit decrease, which are the salaries and fewer tracable overhead.