Question

The Stones are beginning to sell crush and run, rock used for road projects, to municipalities. In order to fully enter this business on a large scale, they must purchase an additional truck for $100,000 and hire a driver for $50,000 a year. They estimate that variable costs to sell and haul the crush and run will be $140 per ton. This business is extremely competitive. Those who succeed tend to sell large volumes at razor thin margins. If the crush and run is priced at $160 per ton, what is the contribution margin?

Given the previous facts, what is the BE in sales and tonnage if target income is $60,000? Which route would you take – the used truck and less experienced driver? Would you enter this business at all?

Assume the same facts as above – sales price is $160 per ton, VC are $120 and fixed costs are $150,000. If 500,000 tons of crush and run can be sold, prepare a contribution margin income statement.

Answer 1