Pate & Murwick, CPAs, employs partners, managers and staff at its center city firm. It is considering outsourcing some of its accounting work to another firm, thus eliminating the need for all of the staff positions. The firm believes that it can outsource the work of half of the staff accountants. A local CPA firm has offered to complete this work for Pate & Murwick at a rate of $120 per hour. The partners estimate the firm will incur variable overhead amounting to 10% of the professional labor cost and direct fixed overhead amounting to $8 per billable hour of labor. Total selling and administrative are estimated at $114,000 per year, with 60% of this being direct fixed costs for the staff accountants.
a. Determine the savings (if any) if Pate & Murwick were to outsource half of the staff accounting work. Show computations.
b. Should Pate & Murwick, CPAs outsource half of the work of the staff accountants?
c. At what rate per hour would Pate & Murwick be willing to consider accepting the proposal to outsource half of the staff accounting work?

Question

Pate & Murwick, CPAs, employs partners, managers and staff at its center city firm. It is considering outsourcing some of its accounting work to another firm, thus eliminating the need for all of the staff positions. The firm believes that it can outsource the work of half of the staff accountants. A local CPA firm has offered to complete this work for Pate & Murwick at a rate of $120 per hour.  The partners estimate the firm will incur variable overhead amounting to 10% of the professional labor cost and direct fixed overhead amounting to $8 per billable hour of labor. Total selling and administrative are estimated at $114,000 per year, with 60% of this being direct fixed costs for the staff accountants. 
a. Determine the savings (if any) if Pate & Murwick were to outsource half of the staff accounting work. Show computations.
b. Should Pate & Murwick, CPAs outsource half of the work of the staff accountants?
c. At what rate per hour would Pate & Murwick be willing to consider accepting the proposal to outsource half of the staff accounting work?

Quizplus · Accepted Answer

The Answer of Pate & Murwick, CPAs, employs partners, managers and staff at its center city firm. It is considering outsourcing some of its accounting work to another firm, thus eliminating the need for all of the staff positions. The firm believes that it can outsource the work of half of the staff accountants. A local CPA firm has offered to complete this work for Pate & Murwick at a rate of $120 per hour.  The partners estimate the firm will incur variable overhead amounting to 10% of the professional labor cost and direct fixed overhead amounting to $8 per billable hour of labor. Total selling and administrative are estimated at $114,000 per year, with 60% of this being direct fixed costs for the staff accountants. 
a. Determine the savings (if any) if Pate & Murwick were to outsource half of the staff accounting work. Show computations.
b. Should Pate & Murwick, CPAs outsource half of the work of the staff accountants?
c. At what rate per hour would Pate & Murwick be willing to consider accepting the proposal to outsource half of the staff accounting work?

Pate & Murwick, CPAs, Employs Partners, Managers and Staff at Its