Company A maintains an accounts receviale department that currently employs 8 people. They are interested in doing an activity analysis because an outside firm has offered to take over a protion of the activities currently handled by the accounts receviale department. the 4 main activites handled by the department are:
1. billing and recording payments,
2. customer serviceactivities,
3. fianncial reporting and analysis, and
4. collecting delinquent accounts. The salaries paid to the department's employees are as follows:
manager 1@ $60,000 per year..............................$60,000
clerks 5@ $30,000 per year..............................150,000
accounts specialists 2@ $40,000 peryear............................... 80,000
Total ..............................$ 290,000
The manager spends an equal amount of timesupervising the 4 main activities. The clerks spend half thetime on billing and recording payments, with the remaining timedivided between reporting activities and customer service. thespecialists spend half the time on delinquent account activitiesand the rest of the time is split between finaincial analysisactivities and customer service activities that the clerks aren'tqualified to do.
An outside Company B has proposed thatit can perform all the activities related to collecting the delinquent accounts for $50,000 per year. Company b claimsthey can save Company A $30,000 because the $80,000 in salariespaid to the specialists who handle delinquent accounts can beeliminated. If the contract is accepted, it's estimated themanager would need to devote a quarter of the time dealing withCompany B employees.
Should Company A accept Compnay B's offer to take over its deliquent account activites?