Downtown Clinic Provides Its Own Housekeeping Services

question 155

Essay

Downtown Clinic provides its own housekeeping services. The clinic director would like to outsource this service and has found a company that will provide the service for $24 per hour. The following information has been collected about the cost per hour to the clinic for performing its own housekeeping services:
Cost per hour of service:
Cleaning supplies $ 2
Direct labour $17
Variable overhead $1
Total hours of housekeeping services per year 2,600
Total fixed overhead $36,000
a)Should Downtown Clinic outsource housekeeping, assuming that $26,000 of fixed costs can be eliminated if the service is outsourced? Provide calculations to support your answer.
b)At what level of service (in hours)would Downtown generally be indifferent between providing housekeeping services or outsourcing them, assuming that $26,000 of fixed costs can be eliminated?
c)Identify one potential opportunity cost that the clinic director might have overlooked.
d)Describe two qualitative factors that might affect this outsourcing decision.

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Definitions:

Chorion

The outermost membrane surrounding an embryo in mammals, including humans, contributing to the formation of the placenta.

Placenta

This organ, developing within the uterus during pregnancy, functions to feed the fetus with necessary nutrients and oxygen and clear out its waste products.

Gestational Age

The age of an embryo or fetus (or the duration of the pregnancy) starting from the first day of the mother's last menstrual period.

Thirty-Seven

A number, specifically the integer following thirty-six and preceding thirty-eight.