Question

Canyon Trails is studying whether to outsource its Human Resources (H/R) activities. Salaried professionals who earn $390,000 would be terminated; in contrast, administrative assistants who earn $120,000 would be transferred elsewhere in the organization. Miscellaneous departmental overhead (e.g., supplies, copy charges, overnight delivery) is expected to decrease by $30,000, and $25,000 of corporate overhead, previously allocated to Human Resources, would be picked up by other departments. If Canyon Trails can secure needed H/R services locally for $410,000, how much would the company benefit by outsourcing? $130,000. $35,000. $155,000. Nothing, as it would be cheaper to keep the department open. $10,000.

Answer 1

$10,000

Step-by-step explanation:

Data provided

Salary of terminated employees = $390,000

Decrease in Administrative Costs = $30,000

Cost of sourcing = $410,000

The computation of company benefit by outsourcing is shown below:-

Savings = Salary of terminated employees + Decrease in Administrative Costs - Cost of sourcing

= $390,000 + $30,000 - $410,000

= $420,000 - $410,000

= $10,000