Question

A large logistics fleet company such as UPS, DHL or FedEx is trying to figure out supply chain costs for a small supply chain facility. You have been asked to step in as a supply chain consultant. The company has identified the following costs.

            Number of trucks used per day in the fleet:                           20 trucks (1 driver each)

            Cost per delivery driver for each truck per hour:                   $10

            Number of hours of delivery per day:                                     10 hours per day

            Number of Driving days per month:                                       20 days per month

            Average company revenues per delivery:                             $6

            Truck fuel costs and wear and tear per item delivery:           $1.00

            Administrative salaries per month                                          $48,000

            Facility maintenance per month:                                             $2000

Identify which of the above are fixed costs and which are variable costs. Explain why it’s a fixed or variable cost. Next, used the identification to calculate the Break Even Point, i.e. the number of items each truck driver needs to deliver per month, per day, and per hour (based on a 10 hour workday) to break even, that is, cover all its costs and start generating a profit?

Answer 1

first is the segregation of costs into fixed and variable:

cost item	classificatio	amount
driver costs (treated as fixed for the given level of activity) (20 drivers *$10per hours * 10 hours a day *20 days a month)	fixed	40,000
wear and tear cost and fuel	variable cost	$1.00 per dellivery
administrative cost	fixed	48,000
facility maintenance per mont	fixed	2,000

now,

break even point per month = fixed cost per month / (revenue per delivery - variable cost per delivery)

=>($40,000+48,000+2,000) / ($6.00-$1.00)

=>$90,000 / $5.00

=>18,000 delivery per month by all truck drivers.

so each truck driver will have to deliver =18,000 / 20 trucks =>900 per month

delivery by each driver each day = 900 per month / 20 days =>45

delivery by each truck driver each hour = 45 per day / 10 hours each day =>4.5 delveries each hour.