Question

BKF.com provides banks access to sophisticated financial information and analysis via the web, enabling them to instantly evaluate both personal and commercial loan applications. To better focus on its client services, BKF.com is considering outsourcing some of its internal functions. Its controller, Jenny Lee, suggests starting with the company's internal email system. She recently attended a conference and learned that GTE and NBC outsource their email function to companies such as Google and Yahoo. Lee began her analysis by identifying the total costs related to last month's in-house email operation, when there were 3,720 employee mailboxes: Variable Costs Email license Virus protection license $20,088 4,464 Miscellaneous 14,508 Fixed Costs Computer hardware 33,852 $72,912 Total costs Lee analyzed the computer hardware costs, identifying its three components: 1. 48% were allocated costs that will continue even if the email system is abandoned. 2. 18% were non-personnel direct costs that will be avoided if the email system is abandoned. 3. 34% were the monthly salaries for two, equally paid interns who worked only on the email system. Mail.com, a leading provider of internet messaging outsourcing services, has offered to host BKF.com's email function for $11.40 per mailbox. BKF.com will still need to pay the virus protection license fee and one of the interns to maintain the virus protection software. A company has agreed to pay BKF.com $4,600 a month to use the computer storage space that will become available if BKF.com outsources its email function. Finally, Lee estimates that 4,065 mailboxes will be required per month next year. REQUIRED [6 tries] By how much will BKF.com's monthly profits change if they decide to outsource its email function to Mail.com instead of managing the service internally? [Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number, using the minus sign instead of parentheses.]

Answer 1

Below I am giving a very easy to understand change in profits statement in a tabular format. A reason column is also provided which explains the adjustment done.

It seems BKF.com's monthly profits would increase by $4073 as a result of this proposal from Lee.

Particulars	Before	Proposed	Difference	Reason
Email boxes operated	3720	4065
	$	$
Email License	20088	0	-20088	This will be completely avoided as managed my Mail.com
Virus Protection License	4464	4464	0	This will still be required to be incurred
Miscellaneous	14508		-14508	This will be completely avoided as managed my Mail.com
Mail.com - variable cost @11.40		46341	46341	Expected 4065 mailboxes @ 11.40
Computer Hardware - Unavoidable 48% of 33852	16249	16249	0	Allocated costs - cant be avoided
Computer Hardware - Avoidable 18% of 33852	6093	0	-6093	Avoidable costs
Computer Hardware - Avoidable 34% of 33852	11510	5755	-5755	One intern will still be retained for Virus protection. Only half of costs can be avoided
Opportunity cost - Storage space		-4600	-4600	Renting out of freed storage space
	72912	68209	-4703