Today is June 15, 2020, I would like to have a better understanding of the company’s pre-tax operating income given different # of snowfalls; a low year (9 snowfalls), an average year (13 snowfalls) and the highest year recorded (33 snowfalls). I have collected weather data for the last 20 years (Appendix I), and noted the probability data and sensitivity analysis can be used to estimate a long-term expected operating income.

APPENDIX I

PROBABILITY OF SNOWFALL

Number of Snowfalls	Probability
0-10	20%
11-25	75%
26 or more	5%

Income Statement

Year Ended May 31, 2020        Revenue
Fees charged to customers	$ 520,000
Expenses1
Truck drivers’ wages	243,000
Truck rental	141,500
Gasoline	17,410
Truck maintenance and repairs	76,400
Other truck-related costs	35,400
Administrative salaries	120,000
Other administrative expenses	16,540
Office and parking-lot-related costs2	36,000
Pre-tax operating income	$ (166,250)

1 Truck drivers’ wages, truck rental, and gasoline costs are directly correlated to the number of snowfalls. RRS pays for the truck rentals per use. All other expenses are independent of the number of snowfalls.

2 RSS owns its head office. The annual depreciation expense for the head office is $8,000 and is included in “office and parking lot-related costs.”

Additional Information;

RSS has 1,300 customers who pay a $400 flat rate for the season regardless how much it snows.

RSS pays its drivers a daily rate of $300.

RSS leased 30 snow removal trucks.

RSS had 27 snowfalls from Nov 2019 to March 2020.

Comments: The income statement and additional information are provided only if the "Expert" requires them to solve the question, otherwise the way the question was presented was the first paragraph and Appendix I.

Comment 2: I am sorry, I do not understand what you are asking for, all the information above was all that was provided.

Answer rating: 100% (QA)

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