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At what level of sales will KPMG be indifferent

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Reference no: EM132788157

Question - KPMG provides accounting services to its clients. After several significant server failures, the company is thinking of outsourcing all its data processing requirements to Oracle Software Systems. An analysis of current operations suggests that for every dollar increase in service revenues, variable data processing costs increase by $0.10.

Fixed costs for the data processing facility are $2,490,000 which can be broken down into the following components:

Data processing manager's salary of $90,000

Data processing staff salaries of $1,500,000

Allocation of building costs to data processing is $350,000

Server depreciation is $500,000

Data centre security costs are $50,000

If the data centre was closed, KPMG would only be able to avoid the manager's salary and the security costs.

Oracle Software systems has offered to handle all of KPMG's data for $0.08 per every sales dollar and a flat annual fee of $250,000.

At what level of sales will KPMG be indifferent between providing the service itself ("making it") vs buying it for oracle (buying it)?

Reference no: EM132788157

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