QUESTION 2 (20 MARKS) The Selesa Hospital was considering to outsource its food service so that it could focus on its co

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Question 2 20 Marks The Selesa Hospital Was Considering To Outsource Its Food Service So That It Could Focus On Its Co 1 (50.49 KiB) Viewed 84 times

QUESTION 2 (20 MARKS) The Selesa Hospital was considering to outsource its food service so that it could focus on its core activities. An experienced supplier, Rely Food Service (RFS) has been contacted for the possibility of an outsourcing arrangement. The hospital's business office has provided the following information for food service for the accounting year just ended: food costs, RM445.000; labour, RM42,500; variable overhead, RM17.500; allocated fixed overhead, RM30,000; and cafeteria sales revenue, RM40,000. EPPA6214 The following information was provided: • RFS will charge the Selesa Hospital RM7.00 per day for each patient served. • Note: This figure has been "marked up" by RFS to reflect the firm's cost of operating the hospital cafeteria. • The Selesa Hospital 250-bed facility operates throughout the year and typically has an average occupancy rate of 70%. • Labour cost is the primary driver for their variable overhead. If an outsourcing agreement is reached, hospital labour costs may drop by 90%. RFS plans to use the Selesa Hospital facilities for meal preparation Cafeteria sales revenue is expected to increase by 15% because RFS will offer an improved menu selection. Required: a. What is meant by the term "outsourcing"? (4 Marks) b. Should the Selesa Hospital outsource its food-service operation to RFS? (10 Marks) What factors, other than dollars, should the management of Selesa Hospital consider before making the final decision? Please advise (6 Marks) c.