(Answered) Question - incremental analysis of outsourcing

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Question - 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 $307,640 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 $316,290 as follows:

Salary of three full-time gardeners $200,300

Plant materials 85,100

Fertilizer 7,130

Fuel 9,870

Depreciation of tractor, mowers, and other

Miscellaneous equipment 13,890

Total $316,290

If Oakland College outsources maintenance, it will be able to sell equipment for $31,630, 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?

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