Truck Leasing Strategy Show your work with Excel and Solver: Reep Construction r
ID: 2511168 • Letter: T
Question
Truck Leasing Strategy
Show your work with Excel and Solver:
Reep Construction recently won a contract for the excavation and site preparation of a new rest area on the Pennsylvania Turnpike. In preparing his bid for the job, Bob Reep, founder and president of Reep Construction, estimated that it would four months to perform the work and that 10, 12, 14, and 8 trucks would be needed in months 1 through 4, respectively. The firm currently has 20 trucks of the type needed to perform the work on the new project. These trucks were obtained last year when Bob signed a long-term lease with PennState Leasing. Although most of these trucks are currently being used on existing jobs, Bob estimates that one truck will be available for use on the new project in month 1, two trucks will be available in month 2, three trucks will be available in month 3, and one truck will be available in month 4. Thus, to complete the project, Bob will have to lease additional trucks.
The long-term leasing contract with PennState has a monthly cost of $600 per truck. Reep Construction pays its truck drivers $20 an hour, and daily fuel costs are approximately $100 per truck. All maintenance costs are paid by PennState Leasing. For planning purposes, Bob estimates that each truck used on the new project will be operating eight hours a day, five days a week for approximately four weeks each month.
Bob does not believe that current business conditions justify committing the firm to additional long-term leases. In discussing the short-term leasing possibilities with PennState Leasing, Bob learned that he can obtain short-term leases of 1-4 months. Short-term leases differ from long-term leases in that the short-term leasing plans include the cost of both a truck and a driver. Maintenance costs for short-term leases also are paid by PennState Leasing. The following costs for each of the four months cover the lease of a truck and driver.
Bob Reep would like to acquire a lease that would minimize the cost of meeting the monthly trucking requirements for his new project, but he also takes great pride in the fact that his company has never laid off employees. Bob is committed to maintaining his no layoff policy; that is, he will use his own drivers even if costs are higher.
Managerial Report
Perform an analysis of Reep Construction%u2019s leasing problem and prepare a report for Bob Reep that summarizes your findings. Be sure to include information on and analysis of the following items.
1. The optimal leasing plan
2. The costs associated with the optimal leasing plan
3. The cost for Reep Construction to maintain its current policy of no layoffs
Cost per Month (S) 4000 3700 3225 3040 Length of LeaseExplanation / Answer
Optimal Leasing Plan
4000
J1
0
7400
J2
0
9675
J3
3
12160
J4
6
4000
F1
0
7400
F2
0
9675
F3
1
4000
M1
1
7400
M2
0
4000
A1
0
Objfun
115660
LHS
<=>
RHS
9
>=
9
10
>=
10
11
>=
11
7
>=
7
The Cost associated with the Optimal Lease Plan
,- Daily Fuel Cost approx $100 per Truck
,- Truckers Work 8 Hour/Day, 5 Days/week
,- 4 Weeks / Month
Cost Per Month
1Month
4000+2000
=
6000
2Month
3700(2)+4000
=
11400
3Month
3225(3)+6000
=
15675
4Month
3040(4)+8000
=
20160
The Cost reep Construction to maintain its current policy of no Layoff
Reep Constuction pays their trucker $20 / Hour
,- Truckers Work 8 Hour/Day, 5 Days/week
,- 4 Weeks / Month
One Trucker Cost
20(8*5*4)
=
3200/Month
Truck Cost
$600/Month
,- Daily Fuel Cost approx $100 per Truck
Total Cost/Month
$5,800
Optimal Leasing Plan
4000
J1
0
7400
J2
0
9675
J3
3
12160
J4
6
4000
F1
0
7400
F2
0
9675
F3
1
4000
M1
1
7400
M2
0
4000
A1
0
Objfun
115660
LHS
<=>
RHS
9
>=
9
10
>=
10
11
>=
11
7
>=
7
The Cost associated with the Optimal Lease Plan
,- Daily Fuel Cost approx $100 per Truck
,- Truckers Work 8 Hour/Day, 5 Days/week
,- 4 Weeks / Month
Cost Per Month
1Month
4000+2000
=
6000
2Month
3700(2)+4000
=
11400
3Month
3225(3)+6000
=
15675
4Month
3040(4)+8000
=
20160
The Cost reep Construction to maintain its current policy of no Layoff
Reep Constuction pays their trucker $20 / Hour
,- Truckers Work 8 Hour/Day, 5 Days/week
,- 4 Weeks / Month
One Trucker Cost
20(8*5*4)
=
3200/Month
Truck Cost
$600/Month
,- Daily Fuel Cost approx $100 per Truck
Total Cost/Month
$5,800
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