State University is considering hiring an outside company for its grounds maintenance.In this regard, State University has received a bid from Mackin Services.Mackin states that its bid of $410,000 will cover all services and planting materials required to "keep State University's grounds in a condition comparable to prior years." State University's cost for grounds maintenance in the preceding year was $412,000 as follows: $$\begin{array} { l r }
\text { Salary of three full-time gardeners } & \$ 295,000 \
\text { Plant materials } & 80,000 \
\text { Fertilizer } & 9,000 \
\text { Fuel } & 8,000 \
\text { Depreciation of other equipment } & 5,000 \
\text { Depreciation of tractor and mowers } & 15,000 \
\text { Total } & \$ 412,000
\end{array}$$ If State University hires Mackin, it will be able to sell its other equipment for $30,000, and the three gardeners will be laid off.What is the first year financial impact of hiring the outside company for its grounds maintenance?
A)$13,000 additional cost
B)$2,000 savings
C)$17,000 savings
D)$30,000 savings

Question

State University is considering hiring an outside company for its grounds maintenance.In this regard, State University has received a bid from Mackin Services.Mackin states that its bid of $410,000 will cover all services and planting materials required to "keep State University's grounds in a condition comparable to prior years." State University's cost for grounds maintenance in the preceding year was $412,000 as follows: $$\begin{array} { l r } 
\text { Salary of three full-time gardeners } & \$ 295,000 \
\text { Plant materials } & 80,000 \
\text { Fertilizer } & 9,000 \
\text { Fuel } & 8,000 \
\text { Depreciation of other equipment } & 5,000 \
\text { Depreciation of tractor and mowers } & 15,000 \
\text { Total } & \$ 412,000
\end{array}$$ If State University hires Mackin, it will be able to sell its other equipment for $30,000, and the three gardeners will be laid off.What is the first year financial impact of hiring the outside company for its grounds maintenance?
A)$13,000 additional cost
B)$2,000 savings
C)$17,000 savings
D)$30,000 savings

Quizplus · Accepted Answer

The first year financial impact of hiring Mackin Services would result in a $17,000 savings. This is calculated by comparing the current maintenance cost of $412,000 to Mackin's bid of $410,000, which already shows a $2,000 savings. Additionally, selling the equipment for $30,000, which would not have been possible without hiring Mackin, effectively reduces the cost further. However, the depreciation costs ($5,000 + $15,000 = $20,000) that were part of the original expenses would no longer be applicable, as the equipment causing these depreciations would be sold. Therefore, the total savings are $2,000 (from the bid difference) + $30,000 (from selling the equipment) - $15,000 (loss of depreciation expense that could reduce taxable income) = $17,000.

State University Is Considering Hiring an Outside Company for Its