10:13W WSP< 1/2 >□s25-7Annual leasing fee for softwareAnnual maintenance of trucksPriscilla Smiley manages a fleet of 250 delivery trucks for Daniels Corporation.Smiley must decide whether the company should outsource the fleetmanagement function. If she outsources to Fleet Management Services (FMS),FMS will be responsible for maintenance and scheduling activities. Thisalternative would require Smiley to lay off her five employees. However, her ownjob would be secure; she would be Daniels's liaison with FMS. If she continuesto manage the fleet, she will need fleet-management software that costs $9,500per year to lease. FMS offers to manage this fleet for an annual fee of $300,000.Smiley performed the following analysis:Total annual salaries of five laid-off employeesFleet Management Service'sannual feeTotal differential cost of⠀⠀⠀соRetain In-House$ 9,500147,000185,000$ 341,5001409/ 1480CQAAOutsource toFMSWord>> BitQ5G 71%Ę$ 300,000Difference$9,500147,000185,000$300,000 (300,000)$41,500||| 0 <:× Total differential cost ofoutsourcing$ 341,500$ 300,000$ 41,500Requirements1. Which alternative will maximize Daniels's short-term operating income?2. What qualitative factors should Daniels consider before making a finaldecision?

Differential analysis: Differential analysis is a cost analysis method in which two or more…

Answered: Requirements 1. Which alternative will…

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