Question

The City of Imperial Falls contracts with Evergreen Waste Collection to provide solid waste collection to households and businesses. Until recently, Evergreen had an exclusive franchise to provide this service in Imperial Falls, which meant that other waste collection firms could not operate legally in the city. The price per pound of waste collected was regulated at 25 percent above the average total cost of collection Cost data for the most recent year of operations for Evergreen are as follows Administrative cost Operating costs-trucks Other collection costs 417,000 1,365,000 337,000 Data on customers for the most recent year are Households Businesses Number of customers 13,700 5,700 6,400 15,400 Waste collected (tons) The City Council of Imperial Falls is considering allowing other private waste haulers to collect waste from businesses, but not from households. Service to businesses from other waste collection firms would not be subject to price regulation. Based on information from neighboring cities, the price that other private waste collection firms will charge is estimated to be $0.05 per pound ( $100 per ton). Evergreen's CEO has approached the city council with a proposal to change the way costs are allocated to households and businesses, which will result in different rates for households and businesses. She proposes that administrative costs and truck operating costs be allocated based on the number of customers and the other collection costs be allocated based on pounds collected. The total costs allocated to households would then be divided by the estimated number of pounds collected from households to determine the cost of collection. The rate would then be 25 percent above the cost. The rate for businesses would be determined using the same calculation

Answer 1

First we need to calculate total cost and then we will divide by total waste to calculate cost per pound waste and then will add up margin as per question Households Businesses Total Total waste in pounds 11400000 30800000 42200000 (5700*2000) (15400* 2000) Total customers 13700 6400 20100 Total cost: Administrative Cost Operating Cost- Trucks Other Collection cost S 417,000.00 $ 1,365,000.00 S 337,000.00 $ 2,119,000.00 Cost per pound Add: Mark up 25% Price per pound 0.0502 0.0126 0.0628 <<2119000/42200000 くく.0502"25%

Calculation of allocation of cost Total $ 417,000.00 Households $ 284,223.88 (417000* 13700 /20100) Businesses S 132,776.12 (417000*6400/2 0100) Administrative cost $ 930,373.13 (1365000* 1370 0/20100) S 434,626.87 (1365000*6400/ 20100 Operating Cost- Trucks $1,365,000.00 $ 91,037.91 (337000*11400 000/42200000) $ 245,962.09 (337000*308000 00/42200000) Other Collection cost S 337,000.00 Total Allocated cost $1,305,634.93 S 813,365.07 $2,119,000.00 Allocated cost per customer 95.30 127.09 (1305634.93/13700) (813365.07/6400) Average allocated cost per pound $ 0.1145 0.0264 (1305634.93/11400000) (813365.07/30800000) Price per pound 0.1432 0.0330