AI Banking provides banks web access to sophisticated financial information and analysis systems. The company combines these tools with benchmarking data access, including e-mail and wireless communications, so that banks can instantly evaluate individual loan applications and entire loan portfolios. All information is encrypted and is available 24/7.
AI Banking's CEO, Amanda Duncan, is happy with the company's growth. To better focus on client service, Duncan is considering outsourcing some functions. CFO Sarabeth Miracle suggests that the company's e-mail may be the place to start. She recently attended a conference and learned that companies such as Continental Airlines, DellNet, GTE, and NBC were outsourcing their e-mail function. Duncan asks Miracle to identify costs related to AI Banking's in-house Microsoft Exchange e-mail application, which has 2,400 mailboxes. This information follows:
Variable costs:
E-mail license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7 per mailbox per month
Virus protection license . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . $1 per mailbox per month
Other variable costs . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . $4 per mailbox per month
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
Requirements
1. Compute the total cost per mailbox per month of AI Banking's current e-mail function.
2. Suppose Mail.com, a leading provider of email services, offers to host AI Banking's e-mail function for $7 per mailbox per month. If AI Banking outsources its e-mail to Mail.com, AI Banking will still need the virus protection software; its computer hardware; and one information technology staff member who would be responsible for maintaining virus protection, quarantining suspicious e-mail, and managing content (e.g., screening e-mail for objectionable content). Should CEO Duncan accept Mail com's offer? Why or why not?
3. Suppose for an additional $5 per mailbox per month, Mail.com will also provide virus protection, quarantine, and content-management services. Outsourcing these additional functions would mean that AI Banking would not need an e-mail information technology staff member or the separate virus protection license. Should CEO Duncan outsource these extra services to Mail.com? Why or why not?