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Outsourcing versus retaining

Accounting decision

The cost of operating our marketing team for the past year was 338,000.

Senior researcher $71,000
Staff researcher $50,000
Clerical staff $72,000
VP Marketing (1) $56,000
(1) Represents 20% of cost of the VP, who is estimated to spend 20% of his time on marketing research issues
Occupancy (2) $25,000
(2) Occupancy costs are $25/sq ft: depreciation, $11; utilities, $10; maintenance, $4.
Utilities are 70% variable; maintenance is an allocation of fixed costs. There are no plans for alternate use of the space.

Subscriptions and travel (3) $64,000
(3) Subscriptions and travel costs would be borne by outside research firm.

Another company has approached us with a bid of $260,000 per year for a three-year contract to perform the same marketing services we do today.

Questions (please provide specific accounting detail) thank you
a. We need the cost differential of outsourcing versus retaining this function.
b. What factors/detail should we consider in making this decision?

Solution Summary

The solution explains how to make a outsourcing versus retaining decision