Company J is a transporter of fruit. They transport goods from A to B (a one way

ID: 2593587 • Letter: C

Question

Company J is a transporter of fruit. They transport goods from A to B (a one way distance of 900 km). In most cases the trucks return empty from B to A. The cost on which the company quotes for business is broken down as follows:

Fuel Cost: $1.56 per km
Driver Salary: $900 per 1,800 km trip
Variable overhead expenses (maintenance, tyres etc): $2.20 per km
Allocation of fixed overhead expenses: $1,200 per 1,800 km trip

Company J has a fixed term contract with Farm X to transport goods to the harbour every week. Recently a second company, the Fruit Y, asked for a quote from Company J to transport fruit pallets to A from B and packaging material back from A to B for one time only.

1.1 What would you suggest is the lowest price one way that Company J can charge Farm X?
1.2 What would you suggest is the lowest price one way that Company J can charge Fruit Y?

Explanation / Answer

One way distance = 900
two way distance = 900*2 = 1,800
here, we need to calculate the cost for the whole trip because while returning from B to A, we incur some expense, Thus we need to add this expenses to the price charged from Farm X and Y.

Total cost for transportation

Farm x

Farm y

Fuel cost (1.5*18,00)

2,808

1,404

Driver salary

900

450

Variable overhead expenses (2.2*1,800)

3,960

1,980

Fixed overhead expense

7,668

3,834

1.1 Lowest price that company J charged from Farm X is $3,834.
1.2. Lowest price that company J charged from Farm X is $3,834 is for one way,
If Farm Y needs fruits and packing material Back from A to B, then the price will be = $7,668+ 3,834 = 11,502
here, for second trip i.e., for packing material we are just transporting to Farm Y.