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Free Wheels has a plant that assembles bicycles. The plant currently has a small cafeteria for the workers, but the kitchen equipment is in need
Free Wheels has a plant that assembles bicycles. The plant currently has a small cafeteria for the workers, but the kitchen equipment is in need of a substantial overhaul. Free Wheels has been offered a contract by Besteats to supply food to the workers. The particulars of the situation are shown in the table. Should Free Wheels continue with the in-house food service or contract the service to Besteats? Food Service: In-House Versus Contract Food service labour (hours/year) 6,000 Wage rate (real, time 1, $/hour) 15 Overhead cost (real, time 1, $/year) 16,000 Kitchen equipment first cost (current, time 0, $) 23,000 Contract cost, years 1 to 3 (current $) 55,000 Contract cost, years 4 to 6 (current $) 63,700 Current dollar MARR 22% Expected annual inflation rate 5% Study period (years) 6
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