# Overhead Cost Reduction Needed to Just Contractor Switch ## **Problem Restatement** Buckaroo will only switch to contractors if the **savings are at least 10% of the go-away costs**. The key question is: **How much of the overhead costs under the full cost calculation would need to actually go away to meet this threshold?** We'll solve this step-by-step. --- ## **Step 1: Calculate 10% Savings Threshold** **Go-away costs (total):** From the table: \[ \text{Go-Away Costs (Total)} = \$1,284,608 \] **Required minimum savings:** \[ 10\% \times \$1,284,608 = \$128,461 \] --- ## **Step 2: Calculate Current Projected Savings (Compared to Go-Away Costs)** From the table, **total savings via contracting compared to go-away costs**: \[ \text{Current Projected Savings} = \$69,788 \] --- ## **Step 3: Determine Additional Savings Needed** \[ \text{Additional Savings Needed} = \text{Required Savings} - \text{Current Projected Savings} \] \[ = \$128,461 - \$69,788 = \$58,673 \] --- ## **Step 4: Overhead in Go-Away Costs** ### Overhead in Full Cost vs. Go-Away Cost | Service | Overhead (Full Cost) | Overhead (Go-Away) | Difference | |--------------------------|---------------------|--------------------|------------| | Custodial Services | $22,814 | $4,200 | $18,614 | | Fleet Maintenance | $35,121 | $16,542 | $18,579 | | Residential Refuse Coll. | $203,543 | $95,054 | $108,489 | | **TOTAL** | **$261,478** | **$115,796** | **$145,682**| So, currently, of the **$261,478** full cost overhead, **$145,682** is already being "taken away" in the go-away cost scenario. --- ## **Step 5: How Much More Overhead Needs to Go Away?** We need to close the gap of **$58,673** in additional savings. If we reduce go-away overhead by $58,673 more, the savings target will be met. ### **Current go-away overhead: $115,796** \[ \text{Overhead that must actually go away} = \$115,796 - \$58,673 = \$57,123 \] So, only **$57,123** of the original overhead would remain. Alternatively, **$261,478 - $57,123 = $204,355** of the full cost overhead would need to "go away" (be eliminated). --- ## **Step 6: Express as a Percentage** \[ \frac{\$204,355}{\$261,478} \approx 78.2\% \] So, **at least 78.2% of the full cost overhead** would need to actually go away for the contractor switch to achieve the 10% savings threshold. --- # **Final Summary** **To justify switching to contractors (with savings of at least 10% of go-away costs), Buckaroo would need at least $204,355 of the $261,478 in overhead costs (78.2%) to truly go away.** If less than this amount of overhead is eliminated, the savings target will not be met, and the switch would not be justified. **Key calculation:** - **Required savings:** $128,461 - **Current projected savings:** $69,788 - **Additional overhead to eliminate:** $58,673 - **Total overhead to "go away":** $204,355 (78.2% of original overhead)

# Overhead Cost Reduction Needed to Justify Contractor Switch ## Problem Restatement Buckaroo will only switch to contractors if the **savings are at least 10% of the go-away costs**. We need to determine how much overhead costs under the full cost calculation must actually be reduced to justify this switch. --- ## Step 1: Calculate 10% Savings Threshold **Go-away costs (total):** \[ \text{Go-Away Costs (Total)} = \$1,284,608 \] **Required minimum savings:** \[ 10\% \times \$1,284,608 = \$128,461 \] --- ## Step 2: Calculate Current Projected Savings **Total savings via contracting compared to go-away costs:** \[ \text{Current Projected Savings} = \$69,788 \] --- ## Step 3: Determine Additional Savings Needed \[ \text{Additional Savings Needed} = \text{Required Savings} - \text{Current Projected Savings} \] \[ = \$128,461 - \$69,788 = \$58,673 \] --- ## Step 4: Overhead in Go-Away Costs ### Overhead in Full Cost vs. Go-Away Cost | Service | Overhead (Full Cost) | Overhead (Go-Away) | Difference | |--------------------------|---------------------|--------------------|--------------| | Custodial Services | $22,814 | $4,200 | $18,614 | | Fleet Maintenance | $35,121 | $16,542 | $18,579 | | Residential Refuse Coll. | $203,543 | $95,054 | $108,489 | | **TOTAL** | **$261,478** | **$115,796** | **$145,682** | The total overhead under full cost is **$261,478**, while the total in go-away costs is **$115,796**. The difference amounts to **$145,682**. --- ## Step 5: How Much More Overhead Needs to Go Away? To meet the required additional savings of **$58,673**, we need to further reduce overhead costs. ### Calculation of Required Overhead Reduction \[ \text{Overhead that must actually go away} = \text{Current Go-Away Overhead} - \text{Additional Savings Needed} \] \[ = \$115,796 - \$58,673 = \$57,123 \] Therefore, **$57,123** of overhead would need to remain. Alternatively, the total overhead that must be removed from the full cost overhead is: \[ \text{Total Overhead to "Go Away"} = \$261,478 - \$57,123 = \$204,355 \] --- ## Step 6: Express as a Percentage To find the percentage of the overhead that needs to go away: \[ \text{Percentage} = \frac{\$204,355}{\$261,478} \approx 78.2\% \] --- # Final Summary To justify switching to contractors (with savings of at least 10% of go-away costs), Buckaroo would need at least **$204,355** of the **$261,478** in overhead costs (approximately **78.2%**) to actually go away. If less than this amount of overhead is eliminated, the savings target will not be achieved, making the switch unjustifiable. **Key Calculations:** - **Required savings:** $128,461 - **Current projected savings:** $69,788 - **Additional savings needed:** $58,673 - **Total overhead to "go away":** $204,355 (78.2% of original overhead)

# Summary of Each Step ## Step 1: Calculate 10% Savings Threshold The total go-away costs amount to **$1,284,608**. To achieve the required savings threshold of **10%**, Buckaroo needs to save at least **$128,461**. ## Step 2: Calculate Current Projected Savings The current projected savings from switching to contractors compared to the go-away costs is **$69,788**. This figure represents the apparent savings that Buckaroo would realize by contracting services instead of maintaining internal operations. ## Step 3: Determine Additional Savings Needed To meet the required savings of **$128,461**, Buckaroo must identify an additional **$58,673** in savings. This gap highlights the need for further reductions in overhead costs. ## Step 4: Overhead in Go-Away Costs The total overhead under full cost is **$261,478**, while the overhead in go-away costs is **$115,796**. The difference of **$145,682** represents the potential reductions available if the go-away options are pursued. ## Step 5: How Much More Overhead Needs to Go Away? To meet the additional savings requirement of **$58,673**, the overhead that must actually go away is calculated to be **$57,123**. This indicates that a total of **$204,355** of the overhead would need to be eliminated from the full cost for a contractor switch to be justified. ## Step 6: Express as a Percentage The calculated percentage of overhead that needs to be removed is approximately **78.2%** of the full cost overhead. This percentage illustrates the significant reduction required in overhead to validate the contractor switch.