Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $222,000. An internally prepared report summarizes the Payroll Department's annual operating costs as follows: Supplies Payroll clerks' salaries Payroll supervisor's salary Payroll employee training expenses Depreciation of equipment Allocated share of common building operating costs Allocated share of common administrative overhead Total annual operating cost $ 32,000 122,000 60,000 12,000 22,000 17,000 30,000 $ 295,000 EDC currently rents overflow office space for $38,000 per year. If the company closes its Payroll Department, the employees occupying the rented office space could be brought in-house and the lease agreement on the rented space could be terminated with no penalty. If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the company's Human Resource Management Department. As a result of this transfer, the company would discontinue its efforts to hire a new Human Resource Manager that it expected to pay an annual salary of $58,000. The Payroll Department's equipment would be transferred to other departments within the company to replace outdated equipment that would be recycled for zero salvage value. Required: What is the financial advantage (disadvantage) of outsourcing the Payroll Department?
Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $222,000. An internally prepared report summarizes the Payroll Department's annual operating costs as follows: Supplies Payroll clerks' salaries Payroll supervisor's salary Payroll employee training expenses Depreciation of equipment Allocated share of common building operating costs Allocated share of common administrative overhead Total annual operating cost $ 32,000 122,000 60,000 12,000 22,000 17,000 30,000 $ 295,000 EDC currently rents overflow office space for $38,000 per year. If the company closes its Payroll Department, the employees occupying the rented office space could be brought in-house and the lease agreement on the rented space could be terminated with no penalty. If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the company's Human Resource Management Department. As a result of this transfer, the company would discontinue its efforts to hire a new Human Resource Manager that it expected to pay an annual salary of $58,000. The Payroll Department's equipment would be transferred to other departments within the company to replace outdated equipment that would be recycled for zero salvage value. Required: What is the financial advantage (disadvantage) of outsourcing the Payroll Department?
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Transcribed Image Text:Express Delivery Company (EDC) is considering outsourcing its Payroll Department to a payroll processing company for an annual fee
of $222,000. An internally prepared report summarizes the Payroll Department's annual operating costs as follows:
Supplies
Payroll clerks' salaries
Payroll supervisor's salary
Payroll employee training expenses
Depreciation of equipment
Allocated share of common building operating costs
Allocated share of common administrative overhead
Total annual operating cost
$ 32,000
122,000
60,000
12,000
22,000
17,000
30,000
$ 295,000
EDC currently rents overflow office space for $38,000 per year. If the company closes its Payroll Department, the employees
occupying the rented office space could be brought in-house and the lease agreement on the rented space could be terminated with
no penalty.
If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the
company's Human Resource Management Department. As a result of this transfer, the company would discontinue its efforts to hire a
new Human Resource Manager that it expected to pay an annual salary of $58,000.
The Payroll Department's equipment would be transferred to other departments within the company to replace outdated equipment
that would be recycled for zero salvage value.
Required:
What is the financial advantage (disadvantage) of outsourcing the Payroll Department?
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