Question

East Coast Railroad Company transports commodities among three routes (city-pairs): Atlanta/Baltimore, Baltimore/Pittsburgh, and Pittsburgh/Atlanta. Significant costs, their cost behavior, and activity rates for April are as follows:

Cost	Amount	Cost Behavior	Activity Rate
Labor costs for loading and unloading railcars	$ 175,582	Variable	$46.00 per railcar
Fuel costs	460,226	Variable	12.40 per train-mile
Train crew labor costs	267,228	Variable	7.20 per train-mile
Switchyard labor costs	118,327	Variable	31.00 per railcar
Track and equipment depreciation	194,400	Fixed
Maintenance	129,600	Fixed
Total Amount	$1,345,363

Operating statistics from the management information system reveal the following for April:

	Atlanta/Baltimore	Baltimore/Pittsburgh	Pittsburgh/Atlanta	Total
Number of train miles	12,835	10,200	14,080	37,115
Number of railcars	425	2,160	1,232	3,817
Revenue per railcar	$600	$275	$440

Instructions

1. Prepare a contribution margin by route report for East Coast Railroad Company for the month of April. Compute the contribution margin ratio in whole percents, rounded to one decimal place.

2. Discuss the route performance of the railroad using the above report.

Answer 1

computing the contribution per rail car
	Atlanta/Baltimore	Baltimore/Pittsburgh	Pittsburgh/Atlanta	Total
working	Amount	working	Amount	working	Amount
Revenue per Rail car (A)	425X600	255,000	275X2160	594,000	440X1232	542,080	1,391,080
Less: Variable cost
Labour cost for loading	46X425	19,550	46X2160	99,360	40X1232	49,280	168,190
Fuel cost	12.40X12835	159,154	12.40X10200	126,480	12.40X14080	174,592	460,226
Train Crew Labour cost	7.20X425	3,060	7.20X2160	15,552	7.20X1232	8,870	27,482
Swith yard labour cost	31X425	13,175	31X2160	66,960	31X1232	38,192	118,327
Total Variable cost (B)		194,939		308,352		270,934	774,225
Contribution (A-B) ©		60,061		285,648		271,146
PV Ratio = Contribution/SalesX100	60061/255000X100	23.6%	285648/594000X100	48.1%	270934/542080X100	50%
Less: Fixed cost (D)
Track & Equipment Depreciation							194,400
Maintenance							129,600
Profit (C-D)	450,225

With the above information Pittsburg to Atlant rail route is more profitable comparing with the other rail routes since it has high contribution. The second place occupies Baltimore to Pittsburgh as it is having contribution of 48.1%.