Express Delivery Company EDC is considering outsourcing its Payroll Department to a payroll processing company for an annual fee of $ An internally prepared report summarizes the Payroll Departments annual

operating costs as follows: 

 

Supplies $

Payroll clerks salaries

Payroll supervisors salary

Payroll employee training expenses

Depreciation of equipment

Allocated share of common building operating costs

Allocated share of common administrative overhead

Total annual operating cost $

EDC currently rents overflow office space for $ per year. If the company closes its Payroll Department, the employees occupying the rented office space could be brought inhouse and the lease agreement on the rented

space could be terminated with no penalty. 

 

If the Payroll Department is outsourced the payroll clerks will not be retained; however, the supervisor would be transferred to the companys Human Resource Management Department. As a result of this transfer, the company

would discontinue its efforts to hire a new Human Resource Manager for whom it expected to pay an annual salary of $ 

 

The Payroll Departments equipment would be transferred to other departments within the company to replace outdated equipment that would be recycled for zero salvage value.

Required:

What is the financial advantage disadvantage of outsourcing the Payroll Department?

Answer rating: 100% (QA)

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