(Make or Buy Decision) Cowboy Construction Company employs a full-time

| September 10, 2016

Question
(Make or Buy Decision) Cowboy Construction Company employs a full-time driver and pays the costs for a vehicle to deliver paperwork between each of its building sites. Select Couriers has offered to make these deliveries to the same standard of service for a fixed sum of $2,000 per month. Cowboy’s annual costs are currently as follows:

Salary and costs of driver

$18,800

Depreciation of vehicle

2,500

Registration, insurance, & servicing

1,000

Fuel

3,000

Total

$25,300

If Cowboy uses Select Couriers, it will sell the vehicle for $2,000 and the driver’s employment will be terminated without any severance payment.

What are the relevant costs involved in this decision?
Should Cowboy subcontract its delivery requirements to Select?
What other considerations are there in making this decision?

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