Question

Course Contents MODULE 2 PROBLEMS... LON-CAPA PROBLEMS ... PROBLEM 4 MAKE OR BUY - Timer Notes Evaluate Feedback HO Print Info 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 3.615 employee mailboxes: $20.967 Virus protection license Fixed Costs mouter hardware Total costs 37,596 $71,577 Lee analyzed the computer hardware costs, identifying its three components: 1. $15,790 were allocated costs that will continue even if the email system is abandoned. 2. $7,143 were non personnel direct costs that will be avoided if the email system is abandoned. 3. $14,662 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 F.com's email function for $14.00 per mailbox. BKF.com will still need to pay the virus protection license fee and one of the inters to maintain the virus protection software. A company has agreed to pay BKF.com $4,800 a month to use the computer storage space that will become available if BKF.com outsources its email function Finally, Lee estimates that 3,860 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 is 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; the make costs are less than the buy costs, enter the difference as a negative number, using the minus sin instead of parentheses.]

Answer 1

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BKF.com
Workings	Amount $
Total Fixed costs	37,596.00
Unavoidable
Allocated cost	15,790.00
Avoidable
Non personnel direct cost	7,143.00
Intern salaries	14,662.00
No. of Intern	2.00
Salary of 1 intern	7,331.00
Number of mail boxes	3,860.00
Charge per mail box	14.00
Total charges	54,040.00
Make cost
Total cost	71,577.00
Less: Unavoidable cost	15,790.00	Unavoidable allocated cost is deducted because these are fixed sunk cost and will be incurred whether the business is running or not.
Make cost	55,787.00
Calculation of incremental cost-	Buy Cost	Make cost	Difference
Total charges	54,040.00
Salary of 1 intern	7,331.00
Virus protection service	3,615.00
Rent from storage space	(4,800.00)
Net cost	60,186.00	55,787.00	4,399.00
So the monthly profit will change by $ 4,399.