Question

Wheeler Food in Ashland, Kentucky, manufactures and markets snack foods. Tessa Lee manages the company’s fleet of 180 delivery trucks. Lee has been charged with “reengineering” the fleet- management function. She has an important decision to make. • Should she continue to manage the fleet in- house with the five employees reporting to her? To do so, she will have to acquire new fleet- management software to stream-line Wheeler Food’s fleet- management process. • Should she outsource the fleet- management function to Fleet Management Services, a company that specializes in managing fleets of trucks for other companies? Fleet Management Services would take over the maintenance, repair, and scheduling of Wheeler Food’s fleet (but Wheeler Food would retain ownership). This alternative would require Lee to lay off her five employees. However, her own job would be ­secure, as she would be Wheeler Food’s liaison with Fleet Management Services. Assume that Lee’s records show the following data concerning Wheeler Food’s fleet:
Book value of Wheeler Food’s trucks, with an estimated five- year life...............$ 3,300,000
Annual leasing fee for new fleet- management software....................................... $ 8,000
Annual maintenance of trucks........................................................................ $ 154,000
Fleet Supervisor Lee’s annual salary.................................................................... $ 59,000
Total annual salaries of Wheeler Food’s five other fleet- management employees..$ 145,000

Suppose that Fleet Management Services offers to manage Wheeler Food’s fleet for an annual fee of $ 276,000.
Which alternative will maximize Wheeler Food’s short- term operating income?



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  • CreatedAugust 27, 2014
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