6. Case Study (modified from assignment by Dr. Stewart, Univ. of Wisc- Superior). Atherton Trucking Company (ATC) is a contract TL carrier that has been using 48' trailers, but O'Hara Plastics recently made a request for ATC to upgrade to 53' trailers (it is assumed that they would continue to ship the maximum quantity permitted by the physical constraints of the larger trailers). Given the fact that the shipper represented approximately 45 percent of ATC's annual revenue, the decision was made to purchase the larger trailers in late 2016. The current price charged for a trailer is $1.80 per mile, but this same shipper also requested the ATC lower the rate on the freight. The decision to lower the rate was the responsibility of Robert Webber, director of traffic for ATC. Since Robert based ATC's rates on cost and then built in a profit margin he gathered the following information for this traffic. Freight density = 10 lbs./cu. ft. Capacity of 48' trailer = 3264 cu. ft. (max. 40,000 lbs) Capacity of 53' trailer = 3857 cu. ft. (max. 40,000 lbs) Average distance freight shipped = 500 miles Variable Costs Driver, $0.40/mile Fuel, $0.60/mile Miscellaneous, 0.50/mile Fixed cost - 10 % of variable cost - Case Study questions: 1. What would be your total cost per mile for the movement (1 point)? 2. How much more (in lbs and %) will the shipper be able to move per trailer after the switch? (2 pts) 3. How much does the shipper pay now per CWT? If the rate stayed the same, how big reduction would the shipper get per CWT? (4 pts) 4. What would be your per mile charge, if you maintained the rate per CWT when going from 48' to 53' trailer (hint: use % weight increase per trailer (2 ( points) 5. Operating the larger trailers wouldn't change the variable cost, but trailer cost 5 would increase fixed cost to 13% of variable cost. What would be the minimum rate to recover the increase in fixed cost (1 point)? 6. What would be the rate to maintain your profit per CWT (4 points)? 7. What would you recommend as the rate for your boss and why (2 points)