Navajo Trucking (NT) trucks cattle around Australia. Marcus provides the followi

Question

Navajo Trucking (NT) trucks cattle around Australia. Marcus provides the following information on a potential contract with an association of cattle stations in Territory. Driver wages per truckload $1,482 Diesel costs per truckload $1, 241 Desired before tax profit $50,000 A requirement of the association contract is the use of customized association livestock trailers provided by an Alice Springs dealer. Immediate payment of the full contract amount of is not required. The dealer will take payment "per truckload' for each of the first $31,000 100 truckloads. The unique nature of the association contract has prompted NT's purchase of a policy for 2016. NT will also pay a fee for accidental death during shipping of $2,000 Insurance $5 per animal You have been asked to provide an analysis of the contract & Marcus's proposed bid of per head of cattle. The association assures NT that all truckloads will comprise exactly safety reasons (I.e. both over-loading and under-loading is dangerous). $150 per head 60 cattle for Calculate the contribution margin for each truckload of cattle. Calculate the fixed costs for NT for accepting the association contract Use your calculations from (a) and (b) to provide a single value to assist analysis of the financial feasibility of the association contract. Explain why your choice for Entry3 for Required (c) Is appropriate.

Explanation / Answer

(a) Calculation of Contribution Margin per truckload

Revenue (150 x 60) = $9000 Direct Wages = ($1482) Diesel Cost = ($1241) Insurance = ($2000) Fee for accidental death (5 x 60) = ($300)

Contribution Margin = $3977

(b) Fixed Cost for NT For accepting the association contract. = $31000

  

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