Dash Delivery Co. Ltd operates a freight service and is planning the next years operation. The companys

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Dash Delivery Co. Ltd operates a freight service and is planning the next year’s operation. The company’s assets are estimated to be \($30\) 400 000 at the beginning of the financial year and \($30\) 700 000 at the 30 June end of financial year. The company expects that it will deliver 25 000 000 kilograms of freight during the year. The variable costs per kilogram averages \($2\), and total fixed costs are budgeted at \($8\) 000 000.

Required

(a) What price should the company charge to deliver a kilogram of freight to earn an 18% before-tax return on the estimated investment in assets?

(b) Calculate the approximate profit margin earned and turnover of assets expected for the company’s next financial year. The company will not have any interest expense. Use the price from requirement A.

(c) If the company can reduce the variable costs needed to deliver a package by \($0.20\), what will be the effect on the return on the estimated investment in operating assets?

(d) If the company actually delivers 27 500 000 kilograms of freight at the price determined in requirement A, what is the company’s rate of return on its budgeted average investment in assets?

(e) Refer to requirement A. If the company requires a return on investment of 14%, how much residual profit can be expected for the next financial year?

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Accounting

ISBN: 9780730382737

11th Edition

Authors: John Hoggett, John Medlin, Keryn Chalmers, Claire Beattie

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