The Owner of a Local Restaurant Is Deciding Whether to Lease

question 50

Essay

The owner of a local restaurant is deciding whether to lease a company van. If the van is leased, the company would avoid paying its vendors to deliver the supplies and food purchases. The owner has negotiated a potential lease contract that would require a down payment plus a flat monthly rental payment. At the end of each year, an additional "contingency" rental payment would be required if the total number of kilometres driven exceeds 8,000. The owner has estimated that the van will be driven 600 kilometres per month for picking up supplies and food purchases, so she does not expect to incur a contingency annual payment. Based on these kilometres, the owner has calculated the expected amount of cost for fuel, repairs, and maintenance. She has received a quote from her insurance company for the next six months' insurance. She plans to hire a part-time employee at $10 per hour to drive the van. The employee will work a flexible schedule based on the deliveries required. Items 1 through 7 are relevant costs for this decision. Indicate whether the dollar amount of each relevant cost is most likely
C certain or
U uncertain.
Each item has only one correct response.
1 Lease down payment
2 Monthly lease rental payments
3 Contingency annual payment
4 Fuel, repairs, and maintenance
5 Van insurance for the next six months
6 Part-time employee wages
7 Reduction in vendor delivery charges

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Definitions:

Stochastic Probability

Involves randomness and uncertainty, it is the probability approach used to model and predict outcomes in situations where exact outcomes are unpredictable.

Transitional Probability

Calculated as the proportion of employees, or the number of employees who have historically resided in a given employment state divided by the total number of employees in the job. The transitional probability of termination for a job that has 10 employees and historically has seen 2 leave every year is 2/10, or 20 percent.

Markov Model

A mathematical model that accounts for transitions from one state to another in a system, where the probability of each state depends only on the current state and not on the history of states.

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An organization’s approach to managing its human resources, designed to align HR practices with business objectives to gain a competitive advantage.