- April 24, 2020 at 1:03 pm
Telford Engineering has identified a global business services partner off-shore. The annual cost of outsourcing the accounting function per annum is forecast to be $292,000. The GBS Company will take over the highly systemised and transactional operations
of payables, receivables, payroll and credit control. Long-term asset and treasury and cash management will remain in-house.
Outsourcing would take place immediately following MEXIT (in about one year’s time) and annual outsourcing costs are estimated to remain constant over time. The total cost of making the staff redundant under the outsource option is estimated to be 25%
of their current annual salaries. Outsourcing would mean that 40% of the other non-staff accounting department costs could be saved each year.
The retained skeleton staff, post-outsourcing, will be paid at 20% more than their current salaries.
Note: The remaining staff to be retained under the Outsource Option will be as follows:
Head of Accounting (unchanged salary) + 2 Fully Qualified (FQ) Accountants and one Part Qualified (PQ) Accountant
Had done in several ways but got incorrect answer.April 24, 2020 at 1:55 pm
But what is the requirement? Are you looking for just first year impact on profit/cash flows? Or at longer time horizon? Are you required to consider the time value of money?
The decision to outsource has:
An annual cost in perpetuity of $292k
A one-off cost (25% of $x amount) of making staff redundant
An annual saving (40% of accounting department costs that are not staff costs – because the department is smaller)
A 20% increase in annual cost for the retained staff (because they have more responsibilities).April 24, 2020 at 10:33 pm
there are 2 other costs are given in accountancy department..1 is amortisation of non current asset and second is admin costs of material and variable overheads…I have tried to taking 40 of them but still got incorrect ansApril 27, 2020 at 7:43 am
Perhaps there is something to indicate that the amortisation of non-current asset should be ignored. If this is a decision-making requirement, amortisation (like depreciation) is not a cash flow and so not a relevant cost/saving and should therefore be ignored.April 28, 2020 at 2:24 pm
can you please give me a formate toby which i can calculate the outsourcing cost as I have tried even taking 40% of only material and variable overheads..but still got incorrect ans…April 28, 2020 at 3:02 pm
As I said, tutors do not have access to the final assessment – so I do not know what it asks. Perhaps you are entering the answer incorrectly – if answer is required as $000s it would be 40 not 40000 for example. I did not even know that you have to get all Qs correct – I assumed there was 50% pass mark on the final assessment.
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