York Hotel currently launders all of its towels and sheets in the basement of the hotel. The company's accounting...

 

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York Hotel currently launders all of its towels and sheets in the basement of the hotel. The company's accounting department has reported the following annual costs of laundering internally. York Hotel Laundry Production Costs For the Year Ended December 31, 2020 Direct Materials Direct Labour Housekeeping Supervisor Depreciation of laundry equipment Allocated Fixed Costs Total Cost Per kg 15,000 kg $4.00 $60,000 $9.00 $135,000 $8.00 $120,000 $4.00 $60,000 $5.00 $75,000 $30.00 $450,000 An external company has offered to process 15,000 kg of laundry per year at a price of $19 per kg. Also consider the following information: • The laundry equipment has no salvage value and has no other use aside from processing the laundry. It cannot be sold. • The fixed costs allocated to the laundry are common to the whole housekeeping department. • The supervisor will take over duties in another department if the laundry is processed at the external company. If this is the case, the supervisor's annual salary will drop to $108,000. Should the company continue to process laundry internally or begin using the external company? Direct Materials Direct Labour Housekeeping Supervisor Depreciation of Laundry Equipment Allocated Fixed Costs Outsource Price Total Relevant Cost Limestone Hotel Laundry Outsource Analysis Production Cost Per kg $4.00 $ $9.00 $ $8,00 $ $4,00 S $5.00 $ 8 15 $ 751 $30.00 S Per kg Differential Cost In-house BEY - 1 S 1$ S $ MA S 15 $ Outsource Total Differential Cost (15,000 kg) Outsource $ $ S $ 15 $ in-house $ $ $ $

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To determine whether the company should continue to process laundry internally or begin using the ex View the full answer