Reference no: EM132710099

Relevant Costs Analysis

• Creative Structures Inc. (CSI) was incorporated in 2018 by Kathryn and Luca Moore. The Moores live in Toronto and work at CSI's office and warehouse, also located in Toronto. Their three young sons love building-block sets. The expense of constantly purchasing new sets inspired their business plan of renting out building-block sets for a fixed monthly fee.

• The Moores strongly believe that gaining customers' trust by providing quality service and safe products is the key to ensuring CSI's growth. CSI has grown rapidly since its inception. Customers' requests are made online and sets are delivered and returned via Canada Post, with customers assuming the shipping costs. CSI rents out an average of 90,000 sets per month but keeps approximately 120,000 sets on hand to allow for periods of higher-than-usual activity.

• CSI wants advice regarding the sanitization process used on the building-block sets. Each returned set is thoroughly cleaned, using a Health-Canada-approved solution and process that kills 99.99% of germs. Kathryn has always overseen the sanitization process, managing a team of trained employees who operate the specialized equipment at the warehouse. The sanitization team works hard, and no product safety incidents have been reported by clients. A recent customer survey indicated that customers are very satisfied with how blocks are maintained like new.

• However, as the business grows, both Luca and Kathryn have had less time for their children. Kathryn wonders if outsourcing the sanitization process is a viable option (Appendix I). Outsourcing would allow Kathryn to work part-time so she can spend more time at home caring for their children. Her time in the business would all be spent performing on-site quality control checks at the outsourcer.

Problem 1: It is October 2020, and Kathryn and Luca are thinking if they should outsource sanitizing or not. Perform Relevant Cost Analysis and be sure to discuss any qualitative aspects that may be appropriate to determine if SCI should outsource sanitizing.