In: Accounting
In the above question, Real Estate Nerds Co. wants to do a comparitive study of both the options- Firstly: Inhouse development of software; Secondly: Outsourcing usage of software.
Option 1- Inhouse Development
Since the labour of the Co. can be assigned to another project. Thus, this means that the personnel is permanent therefore there cost is sunk and not relevant. therefore it will not be considered in calculating relevant cost of this option.
The relevant cost to execute option 1 is $ 50/design usage.
Option 2- Outsourcing to Software Solutions Inc.
the relevant cost to execute option 2 is $60 /design usage.
(a) Analysis- There is savings of ($60-$50)= $10/ design usage If Real Estate Nerds Co. chooses inhouse devlopment of its own software instead of outsourcing.
(b) If Real Estate Nerds Co. chooses to go for Softwae solution inc. then Real Estate Nerds Co. shall have to save $10 on other projects to make the outsourcing finanially beneficial.