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Jenson College provides its own housekeeping services. The College director would like to outsource this...

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Accounting

Jenson College provides its own housekeeping services. The College director would like to outsource this service and has found a company that will provide the service for $48 per hour. The following information has been collected about the cost per hour to the college for performing its own housekeeping services:

Identify relevant costs in outsourcing decision.

Cost per hour of service:
Cleaning supplies $4
Direct labour costs $30
Variable overhead $1
Total hours of housekeeping services per year 3,000
Total fixed overhead $50,000

  • Determine whether Jenson College should outsource housekeeping, assuming that 50% of fixed costs can be eliminated if the service is outsourced. Provide calculations to support your answer.

$(14,000)

  1. b. At what level of service (in hours) would Jenson generally be indifferent between providing housekeeping services or outsourcing them, assuming that 50% of fixed costs can be eliminated?

1,923 hours

  1. c. Describe two qualitative factors that might affect this outsourcing decision.

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