Vheeler Food in Nashville, Tennessee, manufactures and markets snack foods. Tess

ID: 2524650 • Letter: V

Question

Vheeler Food in Nashville, Tennessee, manufactures and markets snack foods. Tessa Casey manages the company's flee (Click the icon to view the decision Casey has to make.) ssume that Casey's records show the following data concerning Wheeler Food's fleet: (Click the icon to view the data.) uppose that Fleet Management Services offers to manage Wheeler Food's fleet for an annual fee of $276,000. Which alte omplete the following analysis. (Enter a "O" for any zero amounts. Use a minus sign or parentheses for subtracting numbe Wheeler Food Outsourcing Decision Analysis Retain Outsource In-House to FMS Difference Total cost of fleet Operating income for Wheeler Food will by S if it outsources the fleet-management function Data Table Book value.of.Wheeler.Food's.trucks, with an.estimated seven-year life Annual leasing fee for new fleet-management software Annual maintenance of trucks Fleet Supervisor Casey's annual salary Total annual salaries of Wheeler Food's five other fleet-management employees $ 3,200,000 9.000 150,000 62,000 155,000

Explanation / Answer

Relevant costs are the direct variable costs

Particulars

Amount ($)

Annual leasing fee for new fleet management software

9000

Annual maintenance of trucks

150000

Annual salary of Casey, the fleet supervisor

62000

Total annual salaries of other employees of fleet management services

155000

Effective relevant cost for in house fleet management services

376000

Effective cost of outsourcing

276000

Thus, saving in net costs in case the fleet management services are outsources ($)

(376000 - 276000)

100000

Since, the savings in expenditures would be $100,000 thus, the operating income of Wheeler Food will increase by $100,000 if the company decides to outsource the fleet management services at an annual cost of $276,000.