Question

Please show work and explain

2. Gizmo, Inc. is a diversified multinational manufacturer. The CEO is considering outsourcing the marketing research function to a global consulting firm. The consulting firm would charge a fixed annual fee of $1,300,000. At present, the costs of operating the marketing research department are $1,508,000 per year, as follows: Director salary $146,000 Staff salaries 890,000 Travel 137,000 Occupancy 84,000 Consultants 90,000 Executive VP 75,000 Overhead 40,000 Miscellaneous 46,000 The outsourcing firm would perform all duties currently performed by Gizmo personnel, as well as those of the external consultants. Miscellaneous expenses (supplies, etc.) would be eliminated. Travel costs would decline 90%. Occupancy costs reflect internal charge for office space in corporate headquarters. Cost for Executive VP reflect a charge for 15% of her salary; the market research director reported to her. Overhead is an allocation of general corporate overhead. Required: Discuss the factors that the CEO should consider in deciding whether to outsource the marketing research function.

Answer 1

The option one is hiring an consulting firm and the other option is continuing the own market research department.

Costs for both the options will be calculated and compared to find out which one is better.

Some costs still continue even if company hires a consulting firm. Those costs will be considered in calculating.

THe costs to be considered and not to be considered have been explained in handwitten solution below.

Outsourcing the marketing research function is a better option.
Optio I. Annual fees = $13,00,00 Option I : Own Cost : $1508,000 of company opts for option I => Total cost : Annual fees to consulting firm IWN: 2) Travel Cast (declined by 90%) IWN 3) occupancy Cast Overhead (wNol) Executive UP (WNS) 1,300,000 1370 84,00 40,000 uret Total cost t 2 14,37,700 W.N. 17 Overhead cost is an allocation of general coporate. overhead. It will be incurred even se hures a consulting firm. It is fixed cost so it will be considered company

thring a consulting firm ie. to outsource the market research function will decrease the company's cost by $150800 - $1437700 - $ 70300. WIN 2: In question it is not mettioned whether the travel cost declines to or by 90%. It is assumed that travel cost will be declined by 90% So, 10% ire. $13700 will still be incurred by Gizmo, Inc. even after hering a Consulting firm. W·N·3: occupancy cost is charge for internal office space. So, it won't be eliminated even after a haring a consulting firm. WIN-4: Duectar's salary staff salary, 90% of travel! Miscellaneous consultants cost will not be heaned in option I Option I is better. W.N.5: Executive UP = $ 75000 Tetol salary y Executive VP = $75000 15%. = $500.000 as it is given that salary to executive up for market research is 15% of her total salary. Market research duector reports to Excaithe up. So, this cast will not be incurred in Option I