Tim Urban, owner/manager of Urban's Motor Court in Key West, is considering outsourcing the daily room cleanup for his motel to Duffy's Maid Service. Tim rents an average of 50 rooms for each of 365 nights (365 X 50 equals the total rooms rented for the year(. Tim's cost to clean a room is $12.50. The Duffy's Maid Service quote is $18.50 per room plus a fixed cost of $25,000 for sundy items such as uniforms with motel's name. Tim's annual fixed cost ofor space, equipment, and supplies is $61,000. Which is the preferred process for Tim, and Why?
outsourcing
To determine the preferred process for Tim, we need to compare the costs of performing room cleanup in-house versus outsourcing to Duffy's Maid Service.
First, let's calculate the total cost of cleaning the rooms in-house for a year:
Total rooms rented for the year = 365 nights x 50 rooms = 18,250 rooms
Cost to clean a room in-house = $12.50
Total cost of cleaning rooms in-house = Cost to clean a room x Total rooms rented for the year
= $12.50 x 18,250 rooms
= $228,125
Next, let's calculate the total cost of outsourcing the daily room cleanup:
Cost per room by Duffy's Maid Service = $18.50
Fixed cost of sundry items = $25,000
Total cost of outsourcing = (Cost per room x Total rooms rented for the year) + Fixed cost of sundry items
= ($18.50 x 18,250 rooms) + $25,000
= $337,625 + $25,000
= $362,625
Finally, let's compare the two costs and determine the preferred process:
In-house cleaning cost: $228,125
Outsourcing cost: $362,625
Based on the calculations, the preferred process for Tim would be to continue with in-house cleaning. The total cost of cleaning rooms in-house is significantly lower ($228,125) compared to the cost of outsourcing to Duffy's Maid Service ($362,625). By keeping the cleaning process in-house, Tim can save $134,500 annually.
Therefore, in terms of cost, it is more cost-effective for Tim to continue with the in-house room cleanup process.
To determine the preferred process for Tim, we need to compare the costs of in-house cleaning versus outsourcing to Duffy's Maid Service.
1. In-house cleaning cost:
Tim rents an average of 50 rooms per night for 365 nights, totaling 18,250 rooms rented for the year (365 x 50 = 18,250).
The cost to clean a room in-house is $12.50 per room.
The total cost of in-house cleaning would be: 18,250 rooms x $12.50 = $228,125.
2. Outsourcing cost:
Duffy's Maid Service quotes $18.50 per room plus a fixed cost of $25,000 for sundry items.
The cost per room for outsourcing is $18.50.
The variable cost for outsourcing would be: 18,250 rooms x $18.50 = $337,625.
The total cost including the fixed cost would be: $337,625 + $25,000 = $362,625.
3. Tim's annual fixed cost:
Tim's annual fixed cost for space, equipment, and supplies is $61,000.
To determine the preferred process, we need to compare the total costs of in-house cleaning and outsourcing, including fixed costs:
1. In-house cleaning cost + fixed cost = $228,125 + $61,000 = $289,125.
2. Outsourcing cost + fixed cost = $362,625 + $61,000 = $423,625.
Based on the calculations, the preferred process for Tim would be to keep the room cleanup in-house. In-house cleaning would cost $289,125 per year, while outsourcing to Duffy's Maid Service would cost $423,625 per year. Therefore, in-house cleaning is more cost-effective for Tim's motel.