Accents Furniture Company has been in business for two years. When the business began, Accents established a delivery department with a small fleet of trucks. The delivery department was designed to be able to handle the substantial future growth of the company.

As expected, sales for the first two years of business were low and activity in the delivery department was minimal.

In an effort to control costs, Accents Furniture Company’s store manager is considering a proposal from a delivery company to deliver the furniture sold by Accents for a flat fee of $30 per delivery.

The following information is available regarding the cost of operating Accents’s delivery department during its first two years of business.

years. For example, sales in 2004 will require an estimated 1,250 deliveries, while in 2005, it is expected that 1,775 deliveries will be required.
Due to the high growth rate, the store manager is concerned that the delivery cost will grow out of hand unless the proposal is accepted. He states that the cost per delivery was about $42.47 ($25,480/600) in 2004 and $37.83 ($26,480/700) in 2005. Even at the lower cost of $37.83, it seems the company can save about $7.83 ($30.00 — $37.83) per delivery.
For 2005, the store manager believes the proposal can save the company about $13,898.25 (1,775 X $7.83).
Required: Assume that you have been assigned to a group which has been formed to analyze the delivery cost of Accents Furniture Company. Your group should prepare a report and presentation that indicates the advantage or disadvantage of accepting the proposed delivery contract. Your report and presentation should not only include calculations to support your recommended course of action, but should also address the non-monetary considerations of contracting with an outside source for delivery services.

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2002 Number of deliveries 600 Cost of operating the delivery department $25,480 2003 700 $26,480