Question

Gizmo, Inc. is a diversified multinational manufacturer. The CEO is considering
outsourcing the marketing research function to a global consulting firm. The
consulting firm would charge a fixed annual fee of $1,100,000. At present, the
costs of operating the marketing research department are $1,315,000 per year, as
follows:
Director salary $130,000
Staff salaries 800,000
Travel 105,000
Occupancy 75,000
Consultants 80,000
Executive VP 60,000
Overhead 20,000
Miscellaneous 45,000
The outsourcing firm would perform all duties currently performed by Gizmo
personnel, as well as those of the external consultants. Miscellaneous expenses (supplies, etc.) would be eliminated. Travel costs would decline 90%. Occupancy costs reflect internal charge for office space in corporate headquarters. Cost for Executive VP reflect a charge for 15% of that individual’s time. Overhead is an allocation of general corporate overhead.
Required: Discuss the factors that the CEO should consider in deciding whether to outsource the marketing research function.

Answer 1