Case Essay

2747 Words Mar 20th, 2014 11 Pages
2014 STUDENT C ASE C OMPETITION
The Student Case Competition is sponsored annually by IMA® to provide an opportunity for students to interpret, analyze, evaluate, synthesize, and communicate a solution to a management accounting problem.

Starfire’s Dilemma

Capacity at What Cost?
By Thomas L. Albright, CPA; Paul E. Juras, CMA, CPA; and Russ Elrod

F

ounded in 1968 by Alan James, Starfire Trucking Company has grown into a sizeable operation with 90 trucks and 180 trailers. Recently,
FHP Technologies, Starfire’s largest customer, submitted a proposal to James to add delivery routes that would improve the efficiency of FHP’s supply chain. With Starfire already operating at (or near) full capacity, James is uncertain that
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Was it possible to squeeze out more capacity from an already fully utilized fleet? Perhaps Starfire could shift trucks from another account. Was taking on more debt truly risky given the profit potential of this new route? Simmons knew he had to make a convincing argument before FHP took the offer to another truck line.

Industry Background and
Cost Structure
Table 1 presents the 2012 income from operations of
Starfire Trucking Company. To better understand the line items and company cost structure, it would be helpful to begin with a general description of the trucking industry and its common practices. (Also see “Industry Terms” for brief definitions of common terms.)
Revenue Sources

Trucking firms generate a variety of revenue types from hauling goods for their clients. The primary source is typically line-haul revenue, which is the revenue earned from hauling freight. Another source is fuel surcharge (FSC) revenue. Trucking companies are exposed to fuel price volatility when they sign a long-term contract with a customer. With the pointed volatility of fuel prices in recent years, trucking companies include the FSC, which is an additional fee that’s triggered when fuel costs exceed predetermined levels. Thus, the primary purpose of the FSC is to protect the truck line from fuel price increases during the contract term.
A trucking line will likely have other,

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