Question

Income from Operations (All financial information in the case has been scaled and disguised for educational purposes.) Over-land Trucking and Freight Income from Operations For the year ending December 31, 2013 Revenue Line Haul Fuel Surcharge Miscellaneous Total Revenue FE 12/31/2013 $20,925,280 4,950,160 450.120 $26,325,570 Per Mile $1.86 0.44 0.04 $2.34 Variable Expenses 0.06 0.78 0.01 Insurance Fuel Oil Lubricants Tolls Parts and Small Tools Hourly Wages: Drivers Trailer Pool Expense Total Variable 675,120 8,775,190 112,700 112.550 787,630 4,950.160 255.120 15,638,480 Fixed Expenses Insurance General Liability Physical Damage Workers Compensation Health Insurance Security Depreciation Salaries, Benefits (Garagel Salaries, Benefits Office Bad Debt Expense Permits Rental Equipment Payroll Taxes Accounting Fees, Supplies Computer Maintenance Miscellaneous Total Variable 112,620 225,010 226,000 224,500 111,750 2,137,500 675,000 1,012,520 113,500 111,520 1,013,000 562,500 112,350 0.01 0.19 0.06 0.09 337510 Income from Operations 6,975 280 $3.581.810

Answer 1

Relevant cost: Variable costs are relevant cost in this case. Non-Relevant Cost: Fixed costs are not relevant as it remains incurred whether accept or reject the proposal. Compute Annual contribution as follows: $2.34 ($1.39) $0.95 Contract revenue per mile Less: Variable expense per mile Contribution margin per mile Loads/week Miles/Load Week/year Expected Annual Mileage 1500 156000 Annual Contribution ($0.95 x 156000) $148,200 Recommendation: Accept the proposal