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.
Required
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