Question

BKF.com provides banks access to sophisticated financial information and analysis via the web, enabling them to instantly evaluate both personal and commercial loan applications. To better focus on its client services, BKF.com is considering outsourcing some of its internal functions. Its controller, Jenny Lee, suggests starting with the company's internal email system. She recently attended a conference and learned that GTE and NBC outsource their email function to companies such as Google and Yahoo. Lee began her analysis by identifying the total costs related to last month's in-house email operation, when there were 3,555 employee mailboxes:

BKF.com provides banks access to sophisticated financial information and analysis via the web, enabling them to instantly evaluate both personal and commercial loan applications. To better focus on its client services, BKF.com is considering outsourcing some of its internal functions. Its controller, Jenny Lee, suggests starting with the company's internal email system. She recently attended a conference and learned that GTE and NBC outsource their email function to companies such as Google and Yahoo. Lee began her analysis by identifying the total costs related to last month's in-house email operation, when there were 3,555 employee mailboxes: Variable Costs Email license Virus protection license Miscellaneous $16,353 4,266 19,908 Fixed Costs Computer hardware 29,862 $70,389 Total costs Lee analyzed the computer hardware costs, identifying its three components: 1. $11,945 were allocated costs that will continue even if the email system is abandoned. 2. $5,972 were non-personnel direct costs that will be avoided if the email system is abandoned. 3. $11,945 were the monthly salaries for two, equally paid interns who worked only on the email system. Mail.com, a leading provider of internet messaging outsourcing services, has offered to host BKF.com's email function for $12.60 per mailbox. BKF.com will still need to pay the virus protection license fee and one of the interns to maintain the virus protection software. A company has agreed to pay BKF.com $4,000 a month to use the computer storage space that will become available if BKF.com outsources its email function. Finally, Lee estimates that 3,800 mailboxes will be required per month next year. REQUIRED [6 tries] By how much will BKF.com's monthly profits change if they decide to outsource its email function to Mail.com instead of managing the service internally? [Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number, using the minus sign instead of parentheses.] Submit Answer Tries 0/6

Answer 1

Relevant Cost of making is the avoidable cost
Variable cost
Email License	17,480
Misc	21,280
Fixed Costs
Non personnel direct cost	5,972
Intern	5,973
Relevant Cost of making	50,705
Cost of buying	47,880
Less: Revenue from outsourcing	4,000
Relevant cost of buying	43,880
Hence, change in profits	6,825