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Mary Tan is the controller for Duck Associates, a property management company

in Portland, Oregon. Each year, Tan and payroll clerk Toby Stock meet with the

external auditors about payroll accounting. This year, the auditors suggest that Tan

consider outsourcing Duck Associates’ payroll accounting to a company specializing

in payroll processing services. This would allow Tan and her staff to focus on

their primary responsibility: accounting for the properties under management. At

present, payroll requires 1.5 employee positions—payroll clerk Toby Stock and a

bookkeeper who spends half her time entering payroll data in the system.

Tan considers this suggestion, and she lists the following items relating to outsourcing

payroll accounting:

a. The current payroll software that was purchased for $4,000 three years ago

would not be needed if payroll processing were outsourced.

b. Duck Associates’ bookkeeper would spend half her time preparing the weekly

payroll input form that is given to the payroll processing service. She is paid

$450 per week.

c. Duck Associates would no longer need payroll clerk Toby Stock, whose annual

salary is $42,000.

d. The payroll processing service would charge $2,000 per month.

Requirements

1. Would outsourcing the payroll function increase or decrease Duck Associates’

operating income?

2. Tan believes that outsourcing payroll would simplify her job, but she does not like

the prospect of having to lay off Stock, who has become a close personal friend.

She does not believe there is another position available for Stock at his current salary.

Can you think of other factors that might support keeping Stock, rather than

outsourcing payroll processing? How should each of the factors affect Tan’s decision

if she wants to do what is best for Duck Associates and act ethically

    • 9 years ago
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