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security. Currently the IT department has ten staff earning, on average, 30 000 per year. The vendor had agreed to take on eight of these staff maintaining the terms and conditions they held with Fleet. Of the remaining two staff one, Charles Smith, was eager to take early retirement and the other was to be retained within Fleet, at a salary of 30 000 to assist with management of the contract. A contract manager would have to be appointed by Fleet this would be a new appointment, the company did not currently have anyone with those skills in-house at an estimated salary of 50 000. Additional information provided by the finance director If Charles Smith retired two years early the company would have to pay an extra 20 000 lump sum into the pension scheme. The building housing the IT department was on a three year lease and the company was committed to an annual rental of 10 000 per year for that period. This building could be sublet if IT were outsourced generating 4 000 in the first year, 8 000 in the second and 10 000 in the final year of the lease. Current forecasts of consumables in the IT department are 5000, 6000 and 7000 over the next three years. The resale value of the IT equipment bought last year is 30 000. Annual overheads for the IT department are 27 000 per year. 60% of the overhead varies with staff numbers, the remaining 40% is a share of central overhead charges. Required You have been appointed as a consultant to prepare a report analysing the outsourcing proposal, including both the financial and non-financial effects, and give your recommendations. Your report should include the following: 1. an incremental costing analysis; 2. the effects on reported profits; 3. discussion of other factors that need to be taken into account before a decision is made; 4. recommendations with reasons; 5. an executive summary.