Preston Concrete is a major supplier of concrete to residential and commercial b
ID: 2544745 • Letter: P
Question
Preston Concrete is a major supplier of concrete to residential and commercial builders in the Pacific Northwest. The company's general pricing policy is to set prices at $118 per cubic yard. Deliveries for 2017 were 390,000 cubic yards. Costs per cubic yard were:
$1,911,000 of the estimated yard operation costs were fixed, and all of the administrative costs were fixed. In addition to the costs above, estimated fixed delivery costs were $180,000 for the year, and estimated variable delivery costs were $6.50 per mile and $39.00 per truck hour. The rate per mile reflects the fact that more miles result in more gas, oil, and maintenance. The rate per truck hour reflects the fact that trucks that are waiting at a job site are kept running (so the concrete mix won't solidify), and drivers continue to get paid during that time.
Near the end of 2017, Fairview Construction Company asked for a delivery of 5,200 cubic yards of concrete but was unwilling to pay the regular price; it was only willing to pay $86 per cubic yard. Preston estimated that the job would require 7,300 miles of driving and 280 truck hours. The housing market in the Pacific Northwest had slowed during recent months, leaving Preston with enough capacity to fill the order, but its sales manager was reluctant to commit to such a reduced price.
REQUIRED
If Preston accepted the offer, what would the profit or loss be (enter a loss as a negative number)?
Explanation / Answer
Calculate incremental profit :
Net profit will increase by $26910
Incremental revenue (5200*86) 447200 Incremental cost Material cost (5200*60.50) (314600) Variable yard operation cost (5200*9.1) (47320) Variable delivery cost (7300*6.5+280*39) (58370) Incremental cost (420290) Incremental profit 26910Related Questions
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