Action Delivery delivers specialty medical supplies to hospitals from its central warehouse. Maureen Fan, the owner and
Question:
Action Delivery delivers specialty medical supplies to hospitals from its central warehouse. Maureen Fan, the owner and manager, charges customers a delivery fee of $2.80 per kilometer. The variable delivery costs reflect the cost of the drivers and the delivery vans. Maureen believes the total variable cost per kilometer is $2.10. The total fixed costs at Action Delivery amount to $280,000 per year.
Required
(a) What is the breakeven number of delivery kilometers per year?
(b) How many kilometers of delivery service must be provided each year to earn a pretax income of $70,000?
(c) Action Delivery faces a tax rate of 30%. How many kilometers of delivery service must be provided each year to earn an after-tax income of $29,400?
(d) Maureen has the opportunity to contract out deliveries to an outside supplier who would charge Maureen a fixed fee of $180,000 per year plus $1.90 per kilometer. Under the contracting-out alternative, the existing level of fixed costs would drop to $200,000, making total fixed costs $380,000. At what annual number of delivery kilometers will Maureen be indifferent between continuing doing deliveries herself or contracting out the deliveries?
Step by Step Answer:
Management Accounting Information For Decision Making
ISBN: 9781618533517
7th Edition
Authors: Anthony A. Atkinson