Question - Differential Analysis Case Study

Madeira Travel Services provides travel agents access to sophisticated travel information and analysis systems over the Web. The company combines these tools with access to benchmarking data, including e-mail and wireless communications, so that travel agents can instantly evaluate airline fares and hotel rates.

Madeira Travel Services; President Joey Madeira is happy with the company's growth. To better focus on client service, Madeira is considering outsourcing some functions. CFO Tom Lee suggests that the company's e-mail may be the place to start. Madeira asks Lee to identify the costs related to Madeira Travel Services' in-house Microsoft Exchange mail application, which has 2,300 mailboxes. This information is below

Variable Costs Per mailbox per month

E-mail license.....................$7

Virus protection license...........$1

Other variable costs...............$4

Fixed Costs

Computer hardware costs............$94,300 per month

$8,050 monthly salary for two information technology staff members who work only on e-mail..........................$16,100 per month

Required:

Compute the total cost per mailbox per month of Madeira Travel Services' current e-mail function.

Suppose that a leader provider of Internet-messaging outsourcing services offers to host Madeira e-mail function for $9 per mailbox per month. If Madeira agrees, it still would need virus protection, computer hardware and one IT person. Should they accept the offer?

Suppose for an additional $5 per mailbox per month, the outsourcer would provide virus protection, quarantine, and content-management services, which would eliminate Madeira's need for IT person and virus protection. Should they accept the additional services?

Show all computations.