Preston Concrete is a major supplier of concrete to residentialand commercial builders in the Pacific Northwest. The company'sgeneral pricing policy is to set prices at $110 per cubic yard.Deliveries for 2013 were 390,000 cubic yards. Costs per cubic yardwere:
Material costs $53.60 Yard operation costs $15.00 Administrative costs $5.50
22% of the estimated yard operation costs were fixed, and all ofthe administrative costs were fixed. In addition to the costsabove, estimated fixed delivery costs were $185,000 for the year,and estimated variable delivery costs were $10.00 per mile and$41.50 per truck hour. The rate per mile reflects the fact thatmore miles result in more gas, oil, and maintenance. The rate pertruck hour reflects the fact that trucks that are waiting at ajobsite are kept running (so the concrete mix won't solidify), anddrivers continue to get paid during that time.
Near the end of 2013, Fairview Construction Company asked for adelivery of 5,500 cubic yards of concrete but was unwilling to paythe regular price; it was only willing to pay $84 per cubic yard.Preston estimated that the job would require 6,900 miles of drivingand 200 truck hours. The housing market in the Pacific Northwesthad slowed during recent months, leaving Preston with enoughcapacity to fill the order, but its sales manager was reluctant tocommit to such a reduced price.
REQUIRED
If Preston accepted the offer, what would the profit or loss havebeen (enter a loss as a negative number)?
Preston Concrete is a major supplier of concrete to residentialand commercial builders in the Pacific Northwest. The company'sgeneral pricing policy is to set prices at $110 per cubic yard.Deliveries for 2013 were 390,000 cubic yards. Costs per cubic yardwere:
| Material costs | $53.60 |
| Yard operation costs | $15.00 |
| Administrative costs | $5.50 |
22% of the estimated yard operation costs were fixed, and all ofthe administrative costs were fixed. In addition to the costsabove, estimated fixed delivery costs were $185,000 for the year,and estimated variable delivery costs were $10.00 per mile and$41.50 per truck hour. The rate per mile reflects the fact thatmore miles result in more gas, oil, and maintenance. The rate pertruck hour reflects the fact that trucks that are waiting at ajobsite are kept running (so the concrete mix won't solidify), anddrivers continue to get paid during that time.
Near the end of 2013, Fairview Construction Company asked for adelivery of 5,500 cubic yards of concrete but was unwilling to paythe regular price; it was only willing to pay $84 per cubic yard.Preston estimated that the job would require 6,900 miles of drivingand 200 truck hours. The housing market in the Pacific Northwesthad slowed during recent months, leaving Preston with enoughcapacity to fill the order, but its sales manager was reluctant tocommit to such a reduced price.
REQUIRED
If Preston accepted the offer, what would the profit or loss havebeen (enter a loss as a negative number)?
Related questions
| Puget Concrete is a major west coast supplier of concrete to residential and commercial builders with multiple sites in the Puget Sound area. Concrete is sold (priced) by the cubic yard including costs based on number of cubic tards, delivery costs based on miles driven, and number of truck-hours while at the job site. The company's pricing policy is to price orders for concrete at 25% over full cost per cubic yard for the order. Full cost includes variable costs for concrete, delivery and yard operations plus an allocation for the estimated annual fixed costs of delivery, site operations and administrative costs (see 2017 cost estimates below). | |||||
| Delivery costs include a rate per mile, recognizing that more miles means more gas and maintenance costs, plus a rate per truck-hour (hours on the job) since if kept waiting on a job site the truck must be kept running so the concrete will not harden and the driver must be paid for that time. Site operations is the name for the company's place where the concrete is prepared and loaded in the truck for delivery. | |||||
| The price per cubic foot quoted the customer is based on full cost for the job plus 25% divided by number of cubic yards for the order as follows: | |||||
| Jobs (orders) are priced as follows (using cost plus method): | |||||
| Number of yards x Concrete cost/yard* | * need to compute cost per yard based on cost data below | ||||
| Number of Miles driven x $10 per mile | using the planned miles for that order | ||||
| Number of Truck hours x $50 per hour | using the planned hours for that order | ||||
| Total Job Cost | |||||
| plus Markup (job cost x 25%) | |||||
| Total Price for the order | |||||
| Total price divided by number of cu yds ordered is the quoted price per cu yd (includes delivery) | |||||
| At the start of 2017, the company estimated their costs as follows: | |||||
| Costs included in concrete cost/yard: | |||||
| Direct Material cost = $75 per cubic yard | |||||
| Variable site operations costs = $17 per cubic yard | |||||
| Fixed site operations costs = $300,000 per year | |||||
| Fixed Delivery costs = $500,000 per year | |||||
| Fixed Admin. costs = $2,125,000 per year | |||||
| Costs included in delivery cost: | |||||
| Variable Delivery costs = $10 per mile + $50 per truck hour | |||||
| And estimated 2017 sales volume is as follows: | |||||
| Annual totals (planned): | 2017 amount | ||||
| Total Cubic Yds to be delivered (sold) | 500,000 | ||||
| Total Delivery Miles | 700,000 | ||||
| Total Truck-hours | 25,000 | ||||
| Total number of jobs (orders) | 100 | ||||
| Answer each question below (Q1 - Q5) on the tab for that number. Format answer as needed. | |||||
| Use "Wrap Text" and "Merge cells" to format cells to hold the text answers on the same page (as shown with this sentence). Increase the row height to make the whole line visible. | |||||
| Fill in your name on Tab 1 | |||||
| Comprehensive Analysis Project questions (answer on Q# tab) | |||||
| Q5 | Puget's CFO will be meeting with the bank to apply for a loan, he had the following report parepared to meet the bank's request. Review the trends based on the this data and answer the questions below to prepare for the bank meeting: | ||||
| Report of key ratios for last three years: | 2016 | 2015 | 2014 | ||
| Current ratio | 2.6:1 | 2.4:1 | 2.2:1 | ||
| Current assets / Current liabilities | |||||
| Acid test (quick ratio) | 0.9:1 | 1.0:1 | 1.1:1 | ||
| (Cash + Short-term receivables) / Current liabilities | |||||
| Accounts receivable turnover | 9.2 times | 10.3 times | 11.5 times | ||
| Net credit sales / Accounts receivable | |||||
| Inventory turnover | 8.1 times | 7.8 times | 6.2 times | ||
| Cost of goods sold / Inventory | |||||
| Return on total assets | 14.5% | 13.1% | 11.3% | ||
| (Net income + [Interest expense x (1-Tax rate)]) / Total assets | |||||
| Return on common stockholderâs equity | 17.2% | 15.1% | 12.9% | ||
| Net income / Stockholdersâ equity | |||||
| Priceâearnings ratio | 14.5 | 17.2 | 17.8 | ||
| Market price per share / Earnings per share | |||||
| Earnings per share | $1.52 | $1.51 | $1.54 | ||
| Net income / Number of common shares outstanding | |||||
| Note: There has been no change in number of shares outstanding. | |||||
| Required: Answer each question (a - d) comparing 2016 to prior years and explain which ratio(s) were used and how they are interpreted (results of analysis). | |||||
| a) Is it becoming easier for the company to pay its bills as they come due? | |||||
| b) Are customers paying their credit accounts as well as they were in 2014? | |||||
| c) Is the level of inventory increasing, decreasing, or remaining constant? | |||||
| d) Is the market price of the companyâs stock going up or down compared to 2014? | |||||
| Required: Answer each question comparing 2016 to prior years and explain which ratio(s) were used and how they are interpreted (results of analysis). | ||||
| a) Is it becoming easier for the company to pay its bills as they come due? | ||||
| b) Are customers paying their credit accounts as well as they were earlier? | ||||
| c) Is the level of inventory increasing, decreasing, or remaining constant? | ||||
| d) Is the market price of the companyâs stock going up or down compared to prior level? | ||||
