01 Feb Description: Mario Lopez owns MLWS, a
Description: Mario Lopez owns MLWS, a window and siding company that employs installers and an office staff that includes an administrative assistant plus two full time accounts receivable clerks. He would like to reduce his overhead costs so he might outsource his receivables function. His two full time receivables clerks earn $27,000 each plus 25% fringe benefits. Variable costs he estimates at $10. Mario was approached by Accounts Receivable Enterprise (ARE) offering to manage his receivables at a fixed cost of $50,000 per year plus $30 per account receivable. Next year, Mario expects to have 1,500 accounts receivable.
What would be the cost to MLWS of continuing to process accounts receivable in-house?
What would be the cost to MLWS of moving the accounts receivable to ARE?
If you could negotiate one or the other but not both of ARE’s fixed or per account receivable costs, which would you choose, and why?
What other alternatives could Mario consider to reduce costs, and how would those alternatives impact the other company employees?
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