This problem continues the Davis Consulting, Inc. situation from Problem P24- 28 of Chapter 24. Davis Consulting provides consulting services at an average price of $ 175 per hour and incurs variable costs of $ 100 per hour. Assume average fixed costs are $ 5,250 a month. Davis has developed new software that will revolutionize billing for companies. Davis has already invested $ 200,000 in the software. It can market the software as is at $ 30,000 per client and expects to sell to eight clients. Davis can develop the software further, adding integration to Microsoft products at an additional devel-opment cost of $ 120,000. The additional development will allow Davis to sell the software for $ 38,000 each, but to 20 clients. Should Davis sell the software as is or develop it further?
Variable costs: Email license........... $ 7 per mailbox per month
Virus protection license ............ $ 1 per mailbox per month
Other variable costs ............. $ 8 per mailbox per month
Fixed costs:
Computer hardware costs ........... $ 94,300 per month
$ 8,50 monthly salary for two information technology staff members
who work only on email ........... $ 16,100 per month

1. Compute the total cost per mailbox per month of BKFin. com’s current email function.
2. Suppose Mail. com, a leading provider of Internet messaging outsourcing ­services, offers to host BKFin. com’s email function for $ 9 per mailbox per month. If BKFin. com outsources its email to Mail. com, BKFin. com will still need the virus protection software, its computer hardware, and one information technology staff member, who would be responsible for maintaining virus pro-tection, quarantining suspicious email, and managing content (e. g., screening email for objectionable content). Should CEO Wise accept Mail. com’s offer?
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 BKFin. com would not need either an email information technology staff member or the separate virus protection license. Should CEO Wise outsource these extra services to Mail. com?

  • CreatedJanuary 16, 2015
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