Relevant information for outsourcing delivery function (Learning Objectives 1, 6) U.S. Food in Lexington, Kentucky, manufactures and markets snack foods. Betsy Gonzalez manages the company’s fleet of 200 delivery trucks. Gonzalez 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 report¬ ing to her? To do so, she will have to acquire new fleet-management software to streamline U.S. 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 U.S. Food’s fleet (but U.S. Food would retain ownership). This alternative would require Gonzalez to lay off her five employees. However, her own job would be secure, as she would be U.S. Food’s liaison with Fleet Management Services.
Assume that Gonzalez’s records show the following data concerning U.S. Food’s fleet:

Suppose that Fleet Management Services offers to manage U.S. Food’s fleet for an annual fee of $290,000.
Which alternative will maximize U.S. Food’s short-term operating income?

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Book value of U.S. Food's trucks, with an estimated five-year life................ $3,500,000 Annual leasing fee for new fleet-management software.... 8,000 Annual maintenance of trucks 145,500 Fleet Supervisor Gonzalez's annual salary. 60,000 Total annual salaries of U.S. Food's five other fleet-management employees.......... 150,000