Hammer Institute is an accredited college that offers courses almost exclusively on a correspondence basis. Each student pays a tuition fee and receives a set of lesson materials by mail. These course materials are currently prepared and printed in-house.The following information is available from financial records for the year just ended, in which there was a total enrollment of 26,000 students:

Recently, an outside printer presented an offer to print the course lesson materials on a contract basis. The offer stipulated a flat fee of $325,000 for 25,000 sets of lesson materials plus a piecework fee of $15 per set for every set over 25,000. If the offer is accepted, the following changes in the Printing Department would be necessary:
(a) All Printing Department employees would be laid off, except for one clerk who would work part-time to monitor communications with the printer. The clerk currently works 5 days per week at a salary of $ 16,000 per year and has agreed to a part-time arrangement of 3 days per week at the same average daily salary rate plus benefits. Because the Printing Department would be eliminated, this clerk would become a member of the Shipping Department. All other Printing Department employees would receive an average of one month's salary as severance pay. In addition, all variable employee benefits of the Printing Department would be eliminated except for the relevant portion associated with the clerk. Variable benefits amount to 10% of salaries. Fixed benefit costs would continue to be incurred, but would be reallocated to other departments in the institute on some reasonable basis.
(b) Telephone costs formerly charged to the Printing Department would be reduced to $80 per month.
(c) The Printing Department materials, supplies, and postage costs, which are fully variable, would be reduced to $1 per set of lesson materials. This amount would cover the cost of postage.
(d) Occupancy and administration costs of the Printing Department would be eliminated.
(e) The Printing Department's equipment and other fixed assets would be leased to a local business for $33,000 per year.
(f) One set of course lesson materials would be required for each student enrollment. The probability distribution for the anticipated number of student enrollments for next year is as follows:

Required:
(1) On the basis of the information provided, determine whether the outside printer's offer should be accepted, by comparing the fees that would be paid to the outside printer for one year with the savings available from closing the Printing Department for one year.
(2) Assume that before the outside printer is notified, the local newspaper publishes a story indicating that a large nearby manufacturing plant may close. Management believes the probability that student enrollments will remain at 26,000 or decline to 25,000 will increase if the plant closes, and the probability that the plant will close is 90%. Compute revised probabilities for student enrollments, and determine whether the outside printer's offer should be accepted in light of the new information.

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Printing Shipping Department Department Salaries....$160,000 18,200 4,000 165,100 10,800 7,300 25,700 $55,000 7,700 700 16,000 3,400 700 2.500 $391,100 86,000 Employee benefits... Telephone Materials, supplies, and postage Administration. Depreciation Total Estimated Enroliment 25,000 26,000 27,000 28,000 29,000 Probability 05 .15 .40 25 .15