Preston Concrete is a major supplier of concrete to
residential and commercial builders in the Pacific Northwest. The
company's general pricing policy is to set prices at $117 per cubic
yard. Deliveries for 2019 were 400,000 cubic yards, and total costs
were:
Material costs $22,840,000
Yard operation costs $5,600,000
Administrative costs $2,360,000
$1,456,000 of the estimated total yard operation costs were
fixed, and all of the administrative costs were fixed. In addition
to the costs above, estimated fixed delivery costs were $215,000
for the year, and estimated variable delivery costs were $7.00 per
mile and $36.50 per truck hour. The rate per mile reflects the fact
that more miles result in more gas, oil, and maintenance. The rate
per truck hour reflects the fact that trucks that are waiting at a
jobsite are kept running (so the concrete mix won't solidify), and
drivers continue to get paid during that time.
Near the end of 2019, Fairview Construction Company asked for
a delivery of 4,500 cubic yards of concrete but was unwilling to
pay the regular price; it was only willing to pay $80 per cubic
yard. Preston estimated that the job would require 7,200 miles of
driving and 290 truck hours. The housing market in the Pacific
Northwest had slowed during recent months, leaving Preston with
enough capacity to fill the order, but its sales manager was
reluctant to commit to such a reduced price.
REQUIRED
If Preston accepted the offer, what would the profit or loss
be (enter a loss as a negative number)?