State University Is Considering Hiring an Outside Company for Its

question 61

Multiple Choice

State University is considering hiring an outside company for its grounds maintenance.In this regard, State University has received a bid from Mackin Services.Mackin states that its bid of $410,000 will cover all services and planting materials required to "keep State University's grounds in a condition comparable to prior years." State University's cost for grounds maintenance in the preceding year was $412,000 as follows: $$\begin{array} { l r } \text { Salary of three full-time gardeners } & \$ 295,000 \\\text { Plant materials } & 80,000 \\\text { Fertilizer } & 9,000 \\\text { Fuel } & 8,000 \\\text { Depreciation of other equipment } & 5,000 \\\text { Depreciation of tractor and mowers } & 15,000 \\\text { Total } & \$ 412,000\end{array}$$ If State University hires Mackin, it will be able to sell its other equipment for $30,000, and the three gardeners will be laid off.What is the first year financial impact of hiring the outside company for its grounds maintenance?

• A)$13,000 additional cost
• B)$2,000 savings
• C)$17,000 savings
• D)$30,000 savings

Understand the concept and calculation of variable overhead rate and efficiency variances.

Understand the concept and calculation of materials quantity variance.

Understand the concept and calculation of raw materials price variance.

Understand how to classify variances as favorable or unfavorable.

---

Definitions:

Front-End Load Fee

A charge applied at the time of purchase of an investment, typically pertaining to mutual funds.

12b-1 Fee

A fee that mutual funds may charge for marketing, distribution, and service expenses, expressed as a percentage of assets under management.

Net Asset Value

The value per share of a fund, calculated by dividing the total value of the fund's assets minus its liabilities by the number of shares outstanding.

Year-End Assets

These are the total value of all assets that a company or individual owns at the end of the fiscal year.