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Outsource activity

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Silver Lakes is studying whether to outsource its Human Resources (HR) activities. Salaried professionals who earn $397,000 would be terminated; in contrast, administrative assistants who earn $120,000 would be transferred elsewhere within the company. Miscellaneous departmental overhead is expected to decrease by $20,000 and $25,000 of corporate overhead, previously allocated to HR would be picked up by other departments. If Silver Lakes can secure needed HR services locally for $410,000, what would the net savings (net cost) by outsourcing?

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Solution Summary

The solution explains how to make a decision if an activity should be outsourced.

Solution Preview

In order to make the decision we need to compare the avoidable cost with the cost of outsourcing.
The avoidable costs are the savings that the ...

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