Questions On The On Land Could Service The Contract With Existing Equipment Essay

Decent Essays

1. Assume Over-land could service the contract with existing equipment. Use Exhibit 1 to identify the relevant costs concerning the acceptance of FHP’s request to add two additional loads per week. Which costs are not relevant? Why?

Acceptance of FHP’s request with existing equipment 90 trucks and 180 trailers in the short time variable costs are relevant and fixed costs are irrelevant. In the short run Over-land can avoid fixed costs but in the long run fixed costs are unavoidable.
FHP’s request 1500 miles Per Load x2= 3000 miles extra in week.
Relevant Costs, Insurance, Fuel, Oil Lubricants, Tolls, Parts and Small Tools, Hourly wages: Drivers, Trailer Pool Expense
Irrelevant Costs, Insurance (General Liability, Physical Damage, Workers Compensation, Health insurance), Security, Depreciation, Salaries Benefits, Bad Debt Expense, Permits, Rental Equipment, Payroll Taxes, Accounting Fees, Supplies, Computer Maintenance, Miscellaneous.

2. Calculate the contribution per mile and total annual contribution associated with accepting FHP’s proposal. What do you recommend? (Use 52 weeks per year in your calculations.) FYE 12/31/13 Per Mile
Revenue $26,325,570 $2.34
Variable Expenses 15,638,480 1.39
Fixed Expenses 6,975,280 0.62
Contribution Margin 3,681,810 $0.33 3000*52=156000 miles (Extra Annually) Per Mile
Revenue $335,400 $2.15
Variable Cost 216,840 1.39
Contribution Margin 118,560 0.76

In the short run fixed

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