Question

1. Compute the number of calendar days needed to complete a one-acre job using the current truck/trailer combination and the larger truck/trailer combination. Use this result to calculate the maximum number of jobs McCoy could accept per year using each truck/trailer combination

Background:

Exhibit 1 ACTUAL REVENUES AND COSTS FOR THE RESORT LAND-CLEARING JOB (in U.S. dollars) Per day Project Calendar days needed to complete the project Revenues Revenue per calendar day $375.00 Total revenues $2,625.00 Variable costs Transportation costs 80 Round trip distance (miles) Rate per mile Transportation costs per calendar day Total transportation costs $0.63 $50.40 (352.80) Shepherd and dog $190.00 Rate per calendar day Total shepherd and dog costs (1330.00 Total variable costs per calendar day Contribution margin $240.40 (1,682.80) $134.60 $942.20 Fixed costs Setup (100.00) Fencing 962 ear feet Rate per linear foot Total fencing costs S0.75 Total fixed costs 82150 Profit $120.70 The area cleared was one acre, or 43,560 square feet. At a daily forage rate of 250 square feet per goat, the job required 174.24 goat days. The trailer has a capacity of 25 goats, so it would take 6.97 days for the goats to finish clearing the land By agreement, McCoy billed for a full trailer (25 goats) for a full day each day the goats were on site. Therefore, McCoy billed the owner for seven calendar days (175 goat days). Exhibit 2 FIXED AND VARIABLE COSTS FOR RESORT JOB (in U.S. dollars) Description Truck and trailer operation and maintenance costs per mile transportation costs Round trip to resort iob site (miles per da Shepherd and dog costs Setup costs for resort iob Fencing costs per linear foot Linear feet of fence needed for resort iob $0.63 80 190.00 100.00 $0.75 962 per da Exhibit3 COSTS FOR LARGER TRUCK AND TRAILER (in U.S. dollars) Description Cost Heavy du 20' used livestock trailer Taxes, title, etc Total investment ickup truck 15,000 7,250 24,475 Exhibit 4 ESTIMATED FIXED AND VARIABLE COSTS FOR GOAT RENTAL OPERATION WITH A LARGER TRUCK AND TRAILER (in U.S. dollars) Larger truck and Description trailer Estimated truck and trailer operation and maintenance costs per mile (transportation costs Average round trip to job site (miles per da Shep Setup costs per iob Fencing costs per linear foot Average linear feet of fence needed per job $1.25 80 herd and dog costs per da $0.75 962

Answer 1

The question can only be solved using certain assumptions. They are:

1. The rate of depreciation and the time of purchase is not given in the question. So, we assume that the cost of larger trucks and trailers has already been borne by the company and no payments will be made towards them i.e. no costs will be incurred in procuring them.

2. The cost for the current trucks and trailers is also not given, so we assume that no payments and/ or costs are to be included while making calculations.

As per question, we need to calculate the number of calendar days needed to complete the job using current trucks/ trailers and the larger trucks/ trailers. In other words, we need to calculate the Break Even Days when the at least the total cost incurred in the job will be recovered.

So, we equate the revenue and the total costs in both scenarios.

Case 1: Current Trucks/ Trailers

Let the number of calendar days required be x.

So, Total Revenue = 375x (Revenue/ day is given in Exhibit 1)

Total Fixed Cost = Fencing Cost + Set up Cost = 0.75*962 + 100 (Data taken from Exhibit 2)

Total Variable Cost/ Day = Shepherd and Dogs Cost + Truck Maintenance & Operations Costs

= 190 + 0.63*80 (Data taken from Exhibit 2) = 240.40

So, to get the break even days, we equate total revenue with total costs. We get,

375x = 240.4x + 821.5....................(1)

On solving the above equation, we get, x = 6.103 days

Since, the number of calendar days cannot be decimal and is higher than 6, we will have to round off the days to 7 and not 6.

So, days required to complete the job is 7.

But, to calculate the maximum number of jobs that can be taken with this combination of Trucks/ Trailers, we use x = 6.103.

We get the number of jobs/ year by using the expression:

Number of Jobs/ year = 365/ 6.103 = 59.8. We round it off to 59 as the number of jobs cannot be higher than the actual value.

Case 2: Larger Trucks/ Trailers

The case will be solved similar to the Case 1 but the data from Exhibit 4 will be considered.

Just like in Equation (1), we equate total costs with total revenues, we get:

375y = (1.25*80 + 190)y + 100 + 0.75*962 (assuming number of calendar days = y)

On solving the above equation, we get, y = 9.66 days, So we consider the number of calendar days as 10.

Again, to calculate the maximum number of Jobs that can be accepted/ year, we use the equation,

Number of Jobs/ year = 365/ 9.66 37.78 or 37 jobs/ year.

Please note, answers to both parts have been derived in the individual cases.