Outsourcing Decision SE4 Dental Associates Inc is currently

Outsourcing Decision SE4. Dental Associates, Inc., is currently operating at less than capacity. The company thinks it could cut costs by outsourcing dental cleaning to an independent dental hygien ist for S50 per cleaning. Currently, a dental hygienist is employed for $30 an hour. A dental cleaning usually takes one hour to perform and consumes $10 of dental supplies, $8 of variable overhead, and $16 of fixed overhead. Should Dental Associates continue to perform dental cleanings, or should it begin to outsource them?

Solution

In the given question the total costs of performing dental cleaning is $48 which are relevant. These include payment to dental hygienist, consumption of dental supplies, variable overhead. Fixed overhead is not considered as it is irrelevant for decision making.

If the same job is outsourced it would cost $50 for the concern.

Therefore, it would beneficial to perform dental cleanings and not to outsource them as the former would give $2 more than the latter.