hospital system is considering outsourcing a portion of its diagnostic workload to a medical consulting firm based in India.

A U.S. hospital system is considering outsourcing a portion of its diagnostic workload to a medical consulting firm based in India. In the United States these diagnostic services, done internally by the hospital system, cost $700,000 per year. The consulting firm would charge $400,000 per year for the same workload. In addition, the hospital system expects to spend $50,000 per year in managerial oversight, $8,000 per year administering the contract, and $125,000 to initially train the consulting firm’s staff (amortized over five years). What is the total annual outsourcing cost during the first five years?

A. $400,000.

B. $483,000.

C. $578,000.

D. None of the above.