Retain Outsource Difference to FMS $ 9,500 147,000 185,000 In-House Annual leasing fee for software Annual maintenance of trucks Total annual salaries of five laid-off employees Fleet Management Service's annual fee $ 9,500 147,000 185,000 (300,000) $ 300,000 $ 300,000 Total differential cost of outsourcing $ 341,500 $ 41,500
Making outsourcing decisions
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:
Requirements
- Which alternative will maximize Daniels’s short-term operating income?
- What qualitative factors should Daniels consider before making a final decision?
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