Pioneer construction 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 $2000 per month. Pioneer annual costs are currently:
- Salary and oncosts of driver $16,000
- Salary and oncosts of builder
- who covers for sickness and
- annual leave/ absences $2,800
- Depreiciation of vehicle $2,500
- Road tax, insurance & servicing $1,000
- Fuel $3,000
- Total $25,300
If Pioneer 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 currenly replaced by casual labor which cost $3,500.
What are the relevant costs involved in this decision? Should Pioneer subcontract its delivery requirements to Select? What considerations are there in making this decision?