RiverView College is considering outsourcing their janitorial services. They have received a bid from Sparkles,...
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RiverView College is considering outsourcing their janitorial services. They have received a bid from Sparkles, LLC for $800,000 per year. Sparkles states that its bid will cover all services and cleaning supplies and that the facilities will "sparkle" as brightly as they have in the past. RiverView's costs for janitorial services in the preceding year were $825,000 as follows:
Salary of full time janitorial employees
$ 520,000
Cleaning Supplies
272,000
Depreciation of cleaning equipment
33,000
Total
$ 825,000
If Riverview outsources the janitorial services they will be able to sell the cleaning equipment for $45,000 and the janitorial employees will be laid off.
a. What is the incremental profit or loss of outsourcing janitorial services in year 1?
b. How will savings in the second year differ from those in year 1?
c. What are some qualitative issues that should be considered?
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