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Requirements 1. Which alternative will maximize Daniels's short-term operating income? 2. What qualitative factors should Daniels consider before making a final decision?

Requirements 1. Which alternative will maximize Daniels's short-term operating income? 2. What qualitative factors should Daniels consider before making a final decision?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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10:13W WSP < 1/2 > □ s25-7 Annual leasing fee for software Annual maintenance of trucks Priscilla Smiley manages a fleet of 250 delivery trucks for Daniels Corporation. Smiley must decide whether the company should outsource the fleet management function. If she outsources to Fleet Management Services (FMS), FMS will be responsible for maintenance and scheduling activities. This alternative would require Smiley to lay off her five employees. However, her own job would be secure; she would be Daniels's liaison with FMS. If she continues to manage the fleet, she will need fleet-management software that costs $9,500 per year to lease. FMS offers to manage this fleet for an annual fee of $300,000. Smiley performed the following analysis: Total annual salaries of five laid- off employees Fleet Management Service's annual fee Total differential cost of ⠀⠀⠀ со Retain In- House $ 9,500 147,000 185,000 $ 341,500 1409/ 1480 C QAA Outsource to FMS Word >> Bit Q5G 71% Ę $ 300,000 Difference $9,500 147,000 185,000 $300,000 (300,000) $41,500 ||| 0 < : ×
Transcribed Image Text:10:13W WSP < 1/2 > □ s25-7 Annual leasing fee for software Annual maintenance of trucks Priscilla Smiley manages a fleet of 250 delivery trucks for Daniels Corporation. Smiley must decide whether the company should outsource the fleet management function. If she outsources to Fleet Management Services (FMS), FMS will be responsible for maintenance and scheduling activities. This alternative would require Smiley to lay off her five employees. However, her own job would be secure; she would be Daniels's liaison with FMS. If she continues to manage the fleet, she will need fleet-management software that costs $9,500 per year to lease. FMS offers to manage this fleet for an annual fee of $300,000. Smiley performed the following analysis: Total annual salaries of five laid- off employees Fleet Management Service's annual fee Total differential cost of ⠀⠀⠀ со Retain In- House $ 9,500 147,000 185,000 $ 341,500 1409/ 1480 C QAA Outsource to FMS Word >> Bit Q5G 71% Ę $ 300,000 Difference $9,500 147,000 185,000 $300,000 (300,000) $41,500 ||| 0 < : ×
Total differential cost of outsourcing $ 341,500 $ 300,000 $ 41,500 Requirements 1. Which alternative will maximize Daniels's short-term operating income? 2. What qualitative factors should Daniels consider before making a final decision?
Transcribed Image Text:Total differential cost of outsourcing $ 341,500 $ 300,000 $ 41,500 Requirements 1. Which alternative will maximize Daniels's short-term operating income? 2. What qualitative factors should Daniels consider before making a final decision?
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