Management Science - Quantitative

The construction firm of Smagglewhetsy & Kid must decide whether to continue to perform payroll functions in-house or to subcontract those services. In-house costs are $2000 a month plus $30 per employee. The same services can be performed by a contractor for $50 per employee plus a monthly service fee of $1200. A) If the construction firm has 30 employees, which option would provide the lower cost? B) Suppose the firm is undergoing an expansion, adding two new employees to its payroll each month. At this rate, in how many months should the firm consider doing its own payroll?