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 $50 per hour. The following information has been collected about the cost per hour to the college for performing its own housekeeping services: Cost per hour of service: Cleaning supplies $3 Direct labour costs $27 Variable overhead $2 Total hours of housekeeping services per year 3,120 Total fixed overhead $51,840 Determine whether Jenson College should outsource housekeeping, assuming that 50% of fixed costs can be eliminated if the service is outsourced. (If an amount reduces the net income then enter with a negative sign preceding the number, e.g.-15,000 or parenthesis, e.g. (15,000).) Number of hours: 3,120 In-house Outsource Net Income Increase (Decrease) Cleaning supplies $ $ $ Direct labour Variable overhead Fixed costs Purchase price Total cost $ $ $ Jenson College outsource the services.

The negative sign indicates how each cost items affects the net income, Negative sign indicates that a cost item will decrease net income while a positive sign indicates an increase in net income.

Cost to the college for performing its house keeping services

Cleaning Supplies costs = $ 3 per hour x 3120 hours = - $9360

Direct Labour Costs = $ 27 per hour x 3120 hours = - $84240

Variable Overheads costs = $ 2 x 3120 hours = - $6240

Total Fixed Costs = - $51840

Total Cost to the college = 9360 + 84240 + 6240 + 51840 = $151680

Cost to the College for Outsourcing

We will assume house keeping hours are still 3120

house keeping service cost per hour = $ 50 x 3120 = - $156000

Total Fixed costs = $51840 x 50/100 = - $25920

Total Costs to the College for outsourcing = 156000 + 25920

Total Costs to the College for outsourcing = $181920

Total costs are lower if the college performs its own house keeping service. Total cost will $18120 if house keeping service is outsourced which higher than the Total cost of $151680 if the college performs it own house keeping services.