2.
SetiaWang SetiaWangsa sa Hospital Hospital has been been hit with a number number of complaints complaints about about its food service service from
patients, employees, and cafeteria customers. These complaints, coupled with a very tight local labor market, have prompted the organization to contact ationwide !nstitutional "ood Service #!"S$ about the possibility of an outsourcing arrangement.
The hospital%s business office has provided the following information for food service for the year &ust ended' food costs, ()*+,- labor, ()*,- variable overhead, ()/,- allocated fi0ed overhead, ()1,- and cafeteria food sales, ()*,.
onversations with !"S personnel revealed the following information' •
!"S will charge SetiaWangsa SetiaWangsa Hospital Hospital ()34 per day for each patient patient served. ote' This figure has been 5marked up5 b y !"S to reflect the firm%s fir m%s cost of operating the hospital cafeteria.
•
SetiaWangsa SetiaWangsa Hospital%s 26bed facility operates throughout the year and typically has an average occupancy rate of 78.
•
9abor is the primary driver driver for variable overhead. !f an outsourcing agreement agreement is reached, hospital labor costs will drop by +8. +8. !"S plans to use St. :oseph facilities for meal preparation.
•
afeteria food sales are e0pected to increase by 38 because !"S will offer an improved menu selection.
Required A. What is meant by the term 5outsourcing5;
=. Should the hospital outsource its food6service operation to !"S; SetiaWangsa #()$
!"S #()$
"ood cost
*+,
6
9abor # *6+8$
*,
*,
>ariable
/,
/,
#*,$
#+2,$
6
*+4,2
930,000
814,250
afeteria food sales #* ? 38$ !"S charges #2 beds 0 78$ #/1 days 0 ()34$ Total cost
The hospital should outsource its food6service operation to !"S because it shows lower total cost. The difference is () 33,7.
C.
What factors, other than ringgits, should the hospital consider before making the final
decision;
• • •
The employees may become demoralized and worry about losing their &ob. The @uality of the food and the price might not be as e0pected. The supplier of the raw materials might be changed so the hospital should factor in the delivery time of the materials, the price and @uality of the products so it will not effect the preparation of the food.