Question

3. Company JLK has 5000 new customers a year on average. They have been doing their own credit report checking at a cost of $2.50 per report and fixed costs of $40,000. Callie's Credit Services has made an offer to do these reports for $10.00 each. Should we accept this offer? Compute inhouse total cost and outsource cost. What other types of things might we want to consider before making a final decision?

Answer 1

Answer: total customers= 5000

Inhouse cost

credit report cost= $2.5 per report, fixed cost= 40,000

total cost= fixed cost+ 2.5*no. of customers = 40,000 + 2.5*5000= 40000+ 12,500= $52,500

Outsource cost

Callie's report cost= $10 per report,

Total cost= 10*no. of customers= 10*5000= $50,000

Yes, company JLK should accept this offer

Things to consider are:

• the difference is of $2500, if the customers rise by 250 in numbers the Callies report will be costlier
• But if the company gets fewer clients than Callies option will be profitable