7-2. PROBLEM 7-2. Incremental Analysis of Outsourcing Decision

Oakland College is considering outsourcing grounds maintenance. In this regard, Oakland has received a bid from Highline Grounds Maintenance for $295,000 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 $302,000 as follows:

Salary of three full-time gardeners $195,000

Plant materials 80,000

Fertilizer 7,000

Fuel 8,000

Depreciation of tractor,mowers, and other

miscellaneous equipment 12,000

Total $302,000

If Oakland College outsources maintenance, it will be able to sell equipment for $30,000, and the three gardeners will be laid off.


a. Analyze the one-year financial impact of outsourcing grounds maintenance.

b. How will savings in the second year differ from those in year 1?

c. Discuss qualitative factors that should be considered in the decision.