Question

Myer Food in Cortland, New York, manufactures and markets snack foods. Mila Lee manages the compahy's fleet of 190 delivery trucks. Loe has been charged with "reengineering the feet management function. She has an important decision to make. (Click the icon to view the decision Lee has to make.) Assume that Lee's records show the following data concerning Myer Food's fleet: (Click the loon to view the data.) Suppose that Fleet Management Services offers to manage Myer Food's fleet for an annual fee of $276,000. Which alternative will maximize Myer Food's short-term operating income? Complete the following analysis. (Enter a "U" for any zero amounts. Use a minus sign or parentheses for subtracting numbers that are typically shown enclosed in parentheses in an outsourcing decision.) Myer Food Outsourcing Decision Analysis Retain Outsource

Answer 1

Answer:

Difference Outsource to FMS 276,000 550,000 $ Myer Food Outsourcing Decision Analysis Retain In-House Outsourcing annual fees $ Depreciation expense ($3,300,000 / 6) $ 550,000 Annual software leasing fees 8,200 Annual maintenace cost 154,000 Fleet supervisor Lee's annual salary 60,000 Other fleet management employees salaries 160,000 Total cost $ 932,200 $ (276,000) 8,200 154,000 60,000 160,000 46,200 886,000 $

Operating Income for Myer Food will INCREASE by $46,200 if it outsource the fleet management function.