Question

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 $1Total hours of housekeeping services per year 3,000Total fixed overhead $50,000Determine whether Jenson College should outsource housekeeping, assuming that 50% of fixed costs can be eliminated if the service is outsourced. Provide calculations to support your answer.$(14,000)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 hoursc. Describe two qualitative factors that might affect this outsourcing decision.

Answer 1

c)Qualitative factors that affects outsourcing decision"

1)Quality of services :Whether the company to whom services are outsourced is capable enough or has sufficient experience in providing housekeeping services .A bad quality service can destroy customer /client relations .

2)Long term relations : whether the company to whom services are outsourced is trustworthy and is interested to maintain long term relations .