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 oncosts of driver £16,000covers for sickness and annual leave absences of driver £2,800Depreciation of vehicle £2,500Road tax, insurance & servicing £1,000Fuel £3,000Total £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?