Familija Consulting has its own legal department with the following annual costs:
Labour $400,000
Administrative Costs $200,000
Overhead $200,000
The managers would like to outsource the legal function because it is not considered a core competency. The overhead is 60% fixed. Of the fixed overhead, $60,000 is the salary of the legal department director. The remaining overhead is an allocation of overhead costs for the entire consulting firm. The department director would still oversee the legal activities and coordinate all of the activities for the organisation with the external lawyer. The maximum amount that Familija is willing to pay an outside firm to replace the legal services is:

Question

Familija Consulting has its own legal department with the following annual costs: 
Labour $400,000
Administrative Costs $200,000
Overhead $200,000
The managers would like to outsource the legal function because it is not considered a core competency. The overhead is 60% fixed. Of the fixed overhead, $60,000 is the salary of the legal department director. The remaining overhead is an allocation of overhead costs for the entire consulting firm. The department director would still oversee the legal activities and coordinate all of the activities for the organisation with the external lawyer. The maximum amount that Familija is willing to pay an outside firm to replace the legal services is:

Quizplus · Accepted Answer

The correct answer is A. The maximum amount that Familija is willing to pay an outside firm to replace the legal services is $740,000. This is because the total annual costs of the legal department are $800,000, and the overhead is 60% fixed. Of the fixed overhead, $60,000 is the salary of the legal department director. The remaining overhead is an allocation of overhead costs for the entire consulting firm. The department director would still oversee the legal activities and coordinate all of the activities for the organisation with the external lawyer. Therefore, the maximum amount that Familija is willing to pay an outside firm to replace the legal services is $800,000 - $60,000 = $740,000.

Familija Consulting Has Its Own Legal Department with the Following