Incremental Analysis of Outsourcing Decision [LO 1, 2, 4]
Oakland College is considering outsourcing grounds maintenance. In this regard, Oakland has received a bid from Highline Grounds Maintenance for $300,480 per year. Highline states that its bid will cover all services and planting materials required to “keep Oakland’s grounds in a condition comparable to prior years.” Oakland’s cost for grounds maintenance in the preceding year were $307,780 as follows:
Salary of three full time gardeners $197,940
Plant materials 80,700
Fertilizer 8,070
Fuel 8,900
Depreciation of tractor, mowers, and other
miscellaneous equipment 12,170
Total $307,780
If Oakland College outsources maintenance, it will be able to sell equipment for $31,360, and the three gardeners will be laid off.
Analyze the one year financial impact of outsourcing grounds maintenance.
$
How will savings in the second year differ from those in year 1?
$
Is it a decrease or an increase