Description
Tim Urban, owner/manager of Urban’s Motor Court in Key West, is considering outsourcing the daily room cleanup for his motel to Duffy’s Maid Service. Tim rents an average of 50 rooms for each of 365 nights (365 × 50 equals the total rooms rented for the year). Tim’s cost to clean a room is $12.50. The Duffy’s Maid Service quote is $18.50 per room plus a fixed cost of $24,000 for sundry items such as uniforms with the motel’s name. Tim’s annual fixed cost for space, equipment, and supplies is $60,000. Which is the preferred process for Tim, and why?
Explanation & Answer
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In-house operation is preferable to outsourcing it to Duffy’s Maid Service.
Solution:
In-house Operation
Susan’s Annual Clean-up cost = 365*50*$12.50 = $228125
Fixed Cost for space, equipment and supplies = $60000
Total Cost if Susan does not outsource = $(228125 + 60000) = $288125
Outsource Operation
Duffy’s Maid Service Annual Quoted Cost = 365*50*$18.50 = $337625
Fixed Cost for sundry items such as uniforms = $24000
Total cost if Susan outsource = $(337625 + 24000) = $361625
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