Problem - Cowboy Constructions employs a full-time driver and incurs costs for a vehicle to deliver paperwork between each of their building sites. Select Couriers has offered to carry out the work to the same standard of service for a fixed sum of £2,000 per month.
Cowboy's annual costs are currently:
Salary and on costs of driver £16,000
Salary and on costs of builder who covers for sickness and annual leave absences of driver £2,800
Depreciation of vehicle £2,500
Road tax, 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 redundancy payment. The builder who covers for sickness and leave of the driver is currently replaced by casual labour which costs £3,500.
What are the relevant costs involved in this decision?
Should Cowboy sub-contract its delivery requirements to Select?
What considerations are there in making this decision?