Question

Preston Concrete is a major supplier of concrete to residential and commercial builders in the Pacific Northwest. The company's general pricing policy is to set prices at $116 per cubic yard. Deliveries for 2019 were 390,000 cubic yards, and total costs were: Material costs Yard operation costs Administrative costs $22,815,000 $5,070,000 $1,638,000 $3,853,200 of the estimated total yard operation costs were variable, and all of the administrative costs were fixed. In addition to the costs above, estimated fixed delivery costs were $195,000 for the year, and estimated variable delivery costs were $6.00 per mile and $37.50 per truck hour. The rate per mile reflects the fact that more miles result in more gas, oil, and maintenance. The rate per truck hour reflects the fact that trucks that are waiting at a jobsite are kept running (so the concrete mix won't solidify), and drivers continue to get paid during that time. Near the end of 2019, Fairview Construction Company asked for a delivery of 5,200 cubic yards of concrete but was unwilling to pay the regular price; it was only willing to pay $75 per cubic yard. Preston estimated that the job would require 7,500 miles of driving and 300 truck hours. The housing market in the Pacific Northwest had slowed during recent months, leaving Preston with enough capacity to fill the order, but its sales manager was reluctant to commit to such a reduced price. REQUIRED If Preston accepted the offer, what would the profit or loss be (enter a loss as a negative number)? Submit Answer Tries 0/8

Answer 1

Units Material Costs Yard Operation Costs Administrative Costs 390000 390000 Variable 22,815,000.00 3,853,200.00 22,815,000.00 5,070,000.00 1,638,000.00 29,523,000.00 Variable/Cubic Yard Fixed 58.50 9.88 1,216,800.00 1,638,000.00 Estimated Variable Cost Sheet for producing 5200 Cubic Yard Concrete Unit Cost Per Unit Material Cost 5200 58.5 304,200.00 Yard Operation 5200 9.88 51,376.00 Rate Per Mile 7500 Miles 6 45,000.00 Rate Per Truck 300 Truck Hours 37.5 11,250.00 411,826.00 Estimated Sales 5200 75 390,000.00 Profit without considering the fixed costs 21,826.00