Cal’s Carpentry is considering outsourcing its accountsreceivable function. Currently, Cal employs two full-time clerksand one part-time clerk to manage accounts receivable. Each fulltime clerk has an annual salary of $36,000 plus fringe benefitscosting 30 percent of their salary. The part-time clerk makes$18,000 per year but has no fringe benefits. Total salary plus fringecost is $111,600. Cal estimates that each account receivable incursa $10 variable cost. The Small Business Accounts ReceivablesGroup (SBARG) specializes in handling accounts receivable forsmall- to medium-size companies. Doris Roberts from SBARGhas offered to do the accounts receivable for Cal’s Carpentry ata fixed cost of $75,000 per year plus $30 per account receivable.Next year, Cal expects to have 2000 accounts receivable.(a) Calculate the cost for Cal’s Carpentry to continue doingaccounts receivable in-house.(b) Calculate the cost for Cal’s Carpentry to use SBARG tohandle the accounts receivable.(c) If the fixed annual cost offered by SBARG is nonnegotiablebut it is willing to negotiate the variable cost, what variablecost from SBARG would make Cal indifferent to the twooptions?(d) What other alternatives might Cal consider in terms of hiscurrent staffing for accounts receivable?(e) What additional criteria should Cal consider beforeoutsourcing the accounts receivable?
Cal’s Carpentry is considering outsourcing its
receivable
and one part-time clerk to
costing 30 percent of their salary. The part-time clerk makes
$18,000 per year but has no fringe benefits. Total salary plus fringe
cost is $111,600. Cal estimates that each account receivable incurs
a $10 variable cost. The Small Business Accounts Receivables
Group (SBARG) specializes in handling accounts receivable for
small- to medium-size companies. Doris Roberts from SBARG
has offered to do the accounts receivable for Cal’s Carpentry at
a fixed cost of $75,000 per year plus $30 per account receivable.
Next year, Cal expects to have 2000 accounts receivable.
(a) Calculate the cost for Cal’s Carpentry to continue doing
accounts receivable in-house.
(b) Calculate the cost for Cal’s Carpentry to use SBARG to
handle the accounts receivable.
(c) If the fixed annual cost offered by SBARG is nonnegotiable
but it is willing to negotiate the variable cost, what variable
cost from SBARG would make Cal indifferent to the two
options?
(d) What other alternatives might Cal consider in terms of his
current staffing for accounts receivable?
(e) What additional criteria should Cal consider before
outsourcing the accounts receivable?
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