1. Using data from 50 workers, a researcher estimates Wage = β₀ + β₁Education + β₂Experience + β₃Age + ε, where Wage is the hourly wage rate and Education, Experience, and Age are the years of higher education, the years of experience, and the age of the worker, respectively. The regression results are shown in the following table.

a-1. Interpret the point estimate for β₁.

• As Education increases by 1 year, Wage is predicted to increase by 1.15/hour.

• As Education increases by 1 year, Wage is predicted to increase by 0.45/hour.

• As Education increases by 1 year, Wage is predicted to increase by 1.15/hour, holding Age and Experience constant.

• As Education increases by 1 year, Wage is predicted to increase by 0.45/hour, holding Age and Experience constant.

a-2. Interpret the point estimate for β₂.

• As Experience increases by 1 year, Wage is predicted to increase by 1.15/hour.

• As Experience increases by 1 year, Wage is predicted to increase by 0.45/hour.

• As Experience increases by 1 year, Wage is predicted to increase by 1.15/hour, holding Age and Education constant.

• As Experience increases by 1 year, Wage is predicted to increase by 0.45/hour, holding Age and Education constant.

b. What is the sample regression equation? (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

c. Predict the hourly wage rate for a 39-year-old worker with 3 years of higher education and 2 years of experience. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

2. A horticulturist is studying the relationship between tomato plant height and fertilizer amount. Thirty tomato plants grown in similar conditions were subjected to various amounts of fertilizer (in ounces) over a four-month period, and then their heights (in inches) were measured. [You may find it useful to reference the t table.]

a. Estimate: HeightˆHeight^⁢ = β₀ + β₁ Fertilizer + ε. (Round your answers to 2 decimal places.)

b-1. At the 1% significance level, determine if an ounce of fertilizer increases height by more than 3 units. First, specify the competing hypotheses.

• H₀: β₁ = 3; H_A: β₁ ≠ 3

• H₀: β₁ ≤ 3; H_A: β₁ > 3

• H₀: β₁ ≥ 3; H_A: β₁ < 3

b-2. Calculate the value of the test statistic. (Round intermediate calculations to at least 4 decimal places and final answer to 3 decimal places.)


b-3. Find the p-value.

• 0.025 p-value < 0.05
• 0.01  p-value < 0.025

• p-value < 0.01

• p-value  0.10
• 0.05  p-value < 0.10

b-4. At the 1% level of significance, what is the conclusion to the test?

A random sample of 22 residential properties was used in a regression of price on nine different independent variables. The variables used in this study were as follows:

PRICE 5 selling price (dollars)
BATHS 5 number of baths (powder room 5 1/2 bath)

BEDA 5 dummy variable for number of bedrooms (1 5 2 bedrooms, 0 5 otherwise) BEDB 5 dummy variable for number of bedrooms (1 5 3 bedrooms, 0 5 otherwise) BEDC 5 dummy variable for number of bedrooms (1 5 4 bedrooms, 0 5 otherwise)

CARA 5 dummy variable for type of garage (1 5 no garage, 0 5 otherwise) CARB 5 dummy variable for type of garage (1 5 one-car garage, 0 5 otherwise)

AGE 5 age in years
LOT 5 lot size in square yards

DOM 5 days on the market

Row     PRICE   BATHS   BEDA    BEDB    BEDC    CARA    CARB    AGE     LOT     DOM     
1       25750   1.0     1       0       0       1       0       23      9680    164     
2       37950   1.0     0       1       0       0       1       7       1889    67      
3       46450   2.5     0       1       0       0       0       9       1941    315     
4       46550   2.5     0       0       1       1       0       18      1813    61      
5       47950   1.5     1       0       0       0       1       2       1583    234     
6       49950   1.5     0       1       0       0       0       10      1533    116     
7       52450   2.5     0       0       1       0       0       4       1667    162     
8       54050   2.0     0       1       0       0       1       5       3450    80      
9       54850   2.0     0       1       0       0       0       5       1733    63      
10      52050   2.5     0       1       0       0       0       5       3727    102     
11      54392   2.5     0       1       0       0       0       7       1725    48      
12      53450   2.5     0       1       0       0       0       3       2811    423     
13      59510   2.5     0       1       0       0       1       11      5653    130     
14      60102   2.5     0       1       0       0       0       7       2333    159     
15      63850   2.5     0       0       1       0       0       6       2022    314     
16      62050   2.5     0       0       0       0       0       5       2166    135     
17      69450   2.0     0       1       0       0       0       15      1836    71      
18      82304   2.5     0       0       1       0       0       8       5066    338     
19      81850   2.0     0       1       0       0       0       0       2333    147     
20      70050   2.0     0       1       0       0       0       4       2904    115     
21      112450  2.5     0       0       1       0       0       1       2930    11      
22      127050  3.0     0       0       1       0       0       9       2904    36      

Using the 9 variable model, give a 95% prediction interval for a house that has 2 baths, 3 bedrooms, 1 car garage, is 10 years old, has 2000 square feet and has been on the market for 60 days.

At this level your program must read in (from a file) at least four albums and up to 15 tracks for each album.

The information read from the file should include:

• Number of Albums

• Album title

• Artist

• Artwork file name (place your artwork in an /images folder under the main folder where you run the program)

• The number of tracks

• The title of each track

• The file location of each track

At this level user interaction must be entirely through a GUI. Your GUI interface should show all the albums using either a text description, artwork or both. Users should be able to click on any Album information (i.e the artwork) and the tracks will be listed. The user should then be able to click on a track to play that track. The currently playing track must be indicated somehow (e.g the track could be highlighted or display a simple text message ‘Now playing ..’). If the user clicks on another track (for the current album or another album) then any currently playing track should be stopped and the most recently selected track start playing.

You must use the Gosu audio API for this component.

Given code:

gui_music_player.rb

require 'rubygems'
require 'gosu'

TOP_COLOR = Gosu::Color.new(0xFF1EB1FA)
BOTTOM_COLOR = Gosu::Color.new(0xFF1D4DB5)

module ZOrder
BACKGROUND, PLAYER, UI = *0..2
end

module Genre
POP, CLASSIC, JAZZ, ROCK = *1..4
end

GENRE_NAMES = ['Null', 'Pop', 'Classic', 'Jazz', 'Rock']

class ArtWork
   attr_accessor :bmp

   def initialize (file)
       @bmp = Gosu::Image.new(file)
   end
end

# Put your record definitions here

class MusicPlayerMain < Gosu::Window

   def initialize
        super 600, 800
        self.caption = "Music Player"

       # Reads in an array of albums from a file and then prints all the albums in the
       # array to the terminal
   end

# Put in your code here to load albums and tracks

# Draws the artwork on the screen for all the albums

def draw_albums albums
    # complete this code
end

# Detects if a 'mouse sensitive' area has been clicked on
# i.e either an album or a track. returns true or false

def area_clicked(leftX, topY, rightX, bottomY)
     # complete this code
end

# Takes a String title and an Integer ypos
# You may want to use the following:
def display_track(title, ypos)
   @track_font.draw(title, TrackLeftX, ypos, ZOrder::PLAYER, 1.0, 1.0, Gosu::Color::BLACK)
end

# Takes a track index and an Album and plays the Track from the Album

def playTrack(track, album)
   # complete the missing code
           @song = Gosu::Song.new(album.tracks[track].location)
           @song.play(false)
    # Uncomment the following and indent correctly:
   #   end
   # end
end

# Draw a coloured background using TOP_COLOR and BOTTOM_COLOR

   def draw_background

   end

# Not used? Everything depends on mouse actions.

   def update
   end

# Draws the album images and the track list for the selected album

   def draw
       # Complete the missing code
       draw_background
   end

    def needs_cursor?; true; end

   # If the button area (rectangle) has been clicked on change the background color
   # also store the mouse_x and mouse_y attributes that we 'inherit' from Gosu
   # you will learn about inheritance in the OOP unit - for now just accept that
   # these are available and filled with the latest x and y locations of the mouse click.

   def button_down(id)
       case id
        when Gosu::MsLeft
           # What should happen here?
        end
   end

end

# Show is a method that loops through update and draw

MusicPlayerMain.new.show if __FILE__ == $0

Que : Mary buys and sells ladies' handbags. She buys for cash and sells on one month's credit. She pays £20 for each bag and sells them for £35 each. During March, her first month of trading, she bought 50 handbags for cash and had 10 handbags remaining in inventory at the month end. Ignoring any other expenses or payments, which of the following statements is true for March?
Select one:
a. The business made a gross profit for the month of £600 and its bank balance decreased by 1,000 as a result of trading.
b. The business made a gross profit for the month of £400 and its bank balance increased by £400 as a result of trading.
c. The business made a gross profit for the month of £600 and its bank balance decreased by £1,400 as a result of trading
d. The business made a gross profit for the month of £600 and its bank balance increased by £1,400 as a result of trading.

Que: In cash flows, when a firm invests in fixed assets and short-term financial investments results in

Select one:
a. Increased Cash
b. Increased Equity
c. Increased Liabilities
d. Decreased Cash

Que: Which of the following terms refers to the cost of an equipment allocated as an expense over its estimated useful life?
Select one:
a. None of the above
b. Sunk cost
c. Book value
d. Depreciation

Que: Which item comes under financial activities in cash flow?
Select one:
a. Issue of Common stock
b. None of the above
c. Purchase of Fixed Assets
d. Sale of Fixed Assets

Que: Cash Flow Statement is based upon
Select one:
a. Accrual basis of accounting
b. Cash basis of accounting
c. Credit basis of accounting
d. None of the above

Que: Accumulated Depreciation, Equipment, is shown as a(n)
Select one:
a. deduction from net income on the statement of owner's equity
b. contra account on the balance sheet
c. expense on the income statement
d. liability on the balance sheet

Que: If a company issues 1 million £1 shares at £1.30 per share, what will be the effect on the statement of cash flows?
Select one:
a. Cash flows from financing activities will increase by £1.0 million.
b. Cash flows from investing activities will increase by £1.3 million.
c. Cash flows from investing activities will increase by £1.0 million.
d. Cash flows from financing activities will increase by £1.3 million.

Que: The statement of cash flow clarifies cash flows according to
Select one:
a. Investing and Non-operating Flows
b. None of the above
c. Operating, Investing, and Financing Activities
d. Operating and Non-operating Flows

Que: Dessy plc made an operating profit of £185,500 after charging depreciation of £31,200. During that year, trade payables increased by £26,600 and inventory increased by £40,300. There was no change to trade receivables. Assuming that no other factors affected it, the cash generated from operations would have been:
Select one:
a. None of the above
b. £283,600.
c. £203,000.
d. £230,400.

Que: Accountants refer to the wages earned by employees but not paid to them at the end of an accounting period as:
Select one:
a. carrying wages
b. deposited wages
c.accrued wages

d. booked wages

A random sample of 22 residential properties was used in a regression of price on nine different independent variables. The variables used in this study were as follows:

PRICE 5 selling price (dollars)
BATHS 5 number of baths (powder room 5 1/2 bath)

BEDA 5 dummy variable for number of bedrooms (1 5 2 bedrooms, 0 5 otherwise) BEDB 5 dummy variable for number of bedrooms (1 5 3 bedrooms, 0 5 otherwise) BEDC 5 dummy variable for number of bedrooms (1 5 4 bedrooms, 0 5 otherwise)

CARA 5 dummy variable for type of garage (1 5 no garage, 0 5 otherwise) CARB 5 dummy variable for type of garage (1 5 one-car garage, 0 5 otherwise)

AGE 5 age in years
LOT 5 lot size in square yards

DOM 5 days on the market

Row     PRICE   BATHS   BEDA    BEDB    BEDC    CARA    CARB    AGE     LOT     DOM     
1       25750   1.0     1       0       0       1       0       23      9680    164     
2       37950   1.0     0       1       0       0       1       7       1889    67      
3       46450   2.5     0       1       0       0       0       9       1941    315     
4       46550   2.5     0       0       1       1       0       18      1813    61      
5       47950   1.5     1       0       0       0       1       2       1583    234     
6       49950   1.5     0       1       0       0       0       10      1533    116     
7       52450   2.5     0       0       1       0       0       4       1667    162     
8       54050   2.0     0       1       0       0       1       5       3450    80      
9       54850   2.0     0       1       0       0       0       5       1733    63      
10      52050   2.5     0       1       0       0       0       5       3727    102     
11      54392   2.5     0       1       0       0       0       7       1725    48      
12      53450   2.5     0       1       0       0       0       3       2811    423     
13      59510   2.5     0       1       0       0       1       11      5653    130     
14      60102   2.5     0       1       0       0       0       7       2333    159     
15      63850   2.5     0       0       1       0       0       6       2022    314     
16      62050   2.5     0       0       0       0       0       5       2166    135     
17      69450   2.0     0       1       0       0       0       15      1836    71      
18      82304   2.5     0       0       1       0       0       8       5066    338     
19      81850   2.0     0       1       0       0       0       0       2333    147     
20      70050   2.0     0       1       0       0       0       4       2904    115     
21      112450  2.5     0       0       1       0       0       1       2930    11      
22      127050  3.0     0       0       1       0       0       9       2904    36      

Using the 9 variable model, give a 95% prediction interval for a house that has 2 baths, 3 bedrooms, 1 car garage, is 10 years old, has 2000 square feet and has been on the market for 60 days.

Please show minitab step by step!

Bob is evaluating the merits of a potential investment in a drone manufacturing company. He already owns the land for the facility, but he would need to purchase and install the assembly machinery for $240,000. The machine falls into the MACRS 5-year class, and it will cost $20,000 to modify it for Bob's particular needs. A consultant, who charged Bob's $10,000 for his services, already completed the process of restructuring the facility for the required zoning and industry standards. The facility require additional net working capital of $5,000. Drone sales are expected to yield before tac revenues of $450,000 per year with labor costs of $200,000 per year and fixed costs of $175,000 per year. Bob expects the machine to be used for 5 years and then sold for $55,000.

Bob has asked you to evaluate his proposed project, and he has provided you with the following information about the investment.

Bob's firm has a target capital structure of 25% debt, 5% preferred stock, and 70% common equity. Its bonds have a 9% coupon, paid semiannually, a current mature of 20 years, and sell at par for $1,000. The firm could sell, at par, $100 preferred stock that pays a 5.75% annual dividend, but flotation costs of 4% would be incurred. The firm's beta is 1.25, the risk-free rate is 3%, and the expected rate of return on the market portfolio is 9.4%. The company is a constant growth firm that just paid a dividend of $2.00, sells for $30 per share, and has a growth rate of 5%. The firm's policy is to use a risk premium of 4% when using the bond-yield-plus-risk-premium method to find the cost of equity. The firm's marginal tax rate is 42%.

In addition to finding the firm's average-risk cost of capital, Bob has also asked you to calculate a risk-adjusted cost of capital. He believes that the project's cash flows for years 1 through 5 will increase by 10% in particularly good market, and the cash flows will decrease by 10% in a particularly bad market. He estimates that there is a 15% probability of a good market occurring, a 25% probability of a bad market occurring, and a 60% probability of an "average" market occurring.

To complete this task of calculating a risk-adjusted cost of capital, you will need to find the expected NPV, its standard deviation, and its coefficient of variation (CV). Bob informs you that his average project has a CV in the range of 1.0 to 2.0. If the CV of a project being evaluated is greater than 2.0, 2 percentage points are added to the cost of capital for the evaluation. Similarly, if the CV is less than 1.0, 1 percentage point is deducted from the cost of capital for the evaluation.

In the end, Bob wants to know whether to accept or reject the project. He expects you to make your conclusion using 3 techniques: discounted payback method, NPV analysis, and IRR analysis.

Throughout your analysis, you are to be as thorough as possible, documenting all of your work to support your conclusion. Please show the following calculations:

1) Bob's WACC for an average-risk project

2) Annual cash flow estimates for the project (including the initial outlay)

3) A Risk- adjusted cost of capital for this project

4) An accept/reject decision based on the above 3 techniques

I am working on creating a Broadcast Receiver. I am extremely new to Android development and Java. I added my code at the bottom of this, but whenever I press the button the app crashes. I'm assuming something is wrong with connecting the broadcastIntent() function. If you could really focus on the first part that would be great!! I appreciate any help :)

Here are the directions from my professor:

1. Create an empty project
2. Create a method in MainActivity.java which creates a Broadcast.

public void broadcastIntent(View view){
       Intent intent = new Intent();
       intent.setAction("my.CUSTOM_INTENT"); sendBroadcast(intent);
   }

3. Add a button to activity_main.xml and link it to this method.
4. Is it working? How can you test it? STOP
5. Create a Broadcast Receiver (accept defaults)
6. Add the following code to your receiver in onReceive() : (remember to comment out the auto generated exception!) what’s an exception?

Toast.makeText(context, "Intent Detected.", Toast.LENGTH_LONG).show();

7. Edit your manifest by adding the following as a child node of <receiver>

<intent-filter>
    <action android:name="my.CUSTOM_INTENT"></action>
</intent-filter>

8. RUN it

MORE DIFFICULT:

1. Create a second receiver called ConnectionReciever and add the following code in onReceive():
2. ConnectivityManager cm =             (ConnectivityManager) context.getSystemService(Context.CONNECTIVITY_SERVICE);     NetworkInfo activeNetwork = cm.getActiveNetworkInfo();     boolean isConnected = activeNetwork != null &&             activeNetwork.isConnectedOrConnecting();     if (isConnected) {         try {             Toast.makeText(context, "Network is connected", Toast.LENGTH_LONG).show();         } catch (Exception e) {             e.printStackTrace();         }     } else {         Toast.makeText(context, "Network state has changed or reconnected", Toast.LENGTH_LONG).show();     } }
3. In your manifest include the following as your intent-filter as a node of the new receiver:

<intent-filter>

    <action android:name="android.net.conn.CONNECTIVITY_CHANGE" />

</intent-filter>

4. Since you are being nosey – you need to ask for user- permission. Include the following as nodes of <manifest> :

<uses-permission android:name="android.permission.INTERNET" />

<uses-permission android:name="android.permission.ACCESS_NETWORK_STATE" />

5. Test it!

MY CODE:

<MainActivity>

package com.example.ica4_broadcast;

import androidx.appcompat.app.AppCompatActivity;

import android.content.Intent;
import android.os.Bundle;
import android.view.View;
import android.widget.Button;
import android.widget.Toast;


public class MainActivity extends AppCompatActivity {
    private Button mybutton;

    @Override
    protected void onCreate(Bundle savedInstanceState) {
        super.onCreate(savedInstanceState);
        setContentView(R.layout.activity_main);
        Button mybutton = (Button) findViewById(R.id.mybutton);
    }

    private void broadcastIntent(View view) {
        Intent intent = new Intent();
        intent.setAction("my.CUSTOM_INTENT");
        sendBroadcast(intent);
        }

}

<activity_xml>

<?xml version="1.0" encoding="utf-8"?>
<androidx.constraintlayout.widget.ConstraintLayout xmlns:android="http://schemas.android.com/apk/res/android"
    xmlns:app="http://schemas.android.com/apk/res-auto"
    xmlns:tools="http://schemas.android.com/tools"
    android:layout_width="match_parent"
    android:layout_height="match_parent"
    tools:context=".MainActivity">

    <Button
        android:id="@+id/mybutton"
        android:layout_width="wrap_content"
        android:layout_height="wrap_content"
        android:layout_marginTop="235dp"
        android:layout_marginEnd="146dp"
        android:layout_marginRight="146dp"
        android:onClick="broadcastIntent"
        android:text="Button"
        app:layout_constraintEnd_toEndOf="parent"
        app:layout_constraintTop_toTopOf="parent" />

</androidx.constraintlayout.widget.ConstraintLayout>

<manifest>

<?xml version="1.0" encoding="utf-8"?>
<manifest xmlns:android="http://schemas.android.com/apk/res/android"
    package="com.example.ica4_broadcast">

    <application
        android:allowBackup="true"
        android:icon="@mipmap/ic_launcher"
        android:label="@string/app_name"
        android:roundIcon="@mipmap/ic_launcher_round"
        android:supportsRtl="true"
        android:theme="@style/Theme.ICA4Broadcast">
        <activity android:name=".MainActivity">
            <intent-filter>
                <action android:name="android.intent.action.MAIN" />
                <category android:name="android.intent.category.LAUNCHER" />
            </intent-filter>
        </activity>
        <receiver android:name=".MyReceiver" android:exported="true">
            <intent-filter>
                <action android:name="my.CUSTOM_INTENT"/>
            </intent-filter>
        </receiver>
    </application>
</manifest>

<MyReceiver>

package com.example.ica4_broadcast;

import android.content.BroadcastReceiver;
import android.content.Context;
import android.content.Intent;
import android.widget.Toast;

public class MyReceiver extends BroadcastReceiver {
    @Override
    public void onReceive(Context context, Intent intent) {
            Toast.makeText(context, "Intent Detected", Toast.LENGTH_LONG).show();

    }
}

Case Study

Over-land Trucking and Freight: Relevant Costs for Decision Making Background Over-land Trucking and Freight has a long-established and mutually beneficial business relationship with a major international automotive parts company, FHP Technologies. Management at FHP has approached Over-land with a request to provide additional routes that are important to the efficiency of its supply chain. Over-land’s management wishes to nurture the business relationship with FHP but is concerned about the available capacity to service the new routes, potential risks, and profitability associated with FHP’s request. Introduction Alan James founded Over-land Trucking and Freight in 1968 and has grown the business into a sizeable operation with 90 trucks and 180 trailers. His largest customer, FHP Technologies, has submitted a proposal to him to add delivery routes that would improve the efficiency of FHP’s supply chain. Alan was not certain that Over-land could handle the additional routes since the company currently was operating at (or near) full capacity. FHP offered a total of $2.15 per mile (including fuel service charge and miscellaneous fees) for the new route. But Alan knew that to accept the offer he would have to add more trucks and perhaps incur additional debt. The question was whether the rates offered by FHP were high enough to offset the associated risks of growing the fleet. Although the business had been grown organically through the years by reinvesting profits, it incurred debt from time to time to replace older equipment (usually in blocks of five trucks). Alan knew the slim profit margins associated with trucking, coupled with a downturn in the economy, could spell disaster if saddled with too much debt. See Exhibits 1 and 2 for the company’s most recent statement of income from operations and the balance sheet, respectively. Roger Simmons, Over-land’s operations manager for the past 16 years, had been reviewing the FHP proposal and approached Alan. “Alan, we need to discuss this offer from FHP. I think it is a great opportunity for our company, and we need to find a way to make it work.” Within 10 minutes Alan and Roger were in a closed-door meeting discussing the pros and cons of FHP’s offer. Roger began by stating the obvious: “Alan, this is a huge opportunity for us to grow the business. Not to mention, as FHP becomes more dependent on our services, we will be in a stronger position to negotiate future rate increases. I know you are opposed to debt, and I understand the risks of carrying more debt, but there is more than one way to grow our fleet. If you would consider using independent contract drivers, we could grow the fleet enough to accept FHP’s offer without incurring more debt.” Alan cringed at the thought of using independent contract drivers. Although independent contractors owned their own trucks, Alan viewed them as difficult to deal with and not worth the headache. “Roger, I hear you, but this new route will not last a week if we cannot give FHP great service. Independent contractors call the shots, not us. They own the rig and will sit at home if they want to. I would rather deal with our own company’s rigs and drivers. The rewards just do not justify the risks of damaging our relationship with FHP. “But I am not sure we should take on any more debt at this point to purchase additional rigs. The economy is in the tank, and it is a bad time for us to leverage the balance sheet any further. Roger, my success in this business was not built by jumping on every offer that came along. Sometimes you have to say no, even to your biggest customer. Unless you can find a way to squeeze out more capacity within our current fleet, I just do not think we can accept FHP’s offer at this time,” Alan concluded. As the two men left the room, Roger was convinced that Alan was wrong. Roger knew that Alan was leaving money on the table. He just needed to prepare a financial analysis that would prove it. Was it 1 possible to squeeze out more capacity from an already fully utilized fleet? Perhaps they could shift trucks from another account. Was taking on more debt truly “risky” given the profit potential of this new route? Roger knew he had to make a convincing argument before FHP took its offer to another truck line. Industry Terms • A tractor-trailer rig is a truck that consists of a tractor attached to a trailer. The tractor typically is powered by a diesel engine. • A flatbed trailer is long flat platform with no sides. • A dry van trailer is a boxed cargo compartment designed for nonrefrigerated freight. • Trucking companies often have a revenue-generating load in one direction but need a revenue-generating contract for the return trip. The return trip is known as a backhaul. Often trucking companies contract with freight brokers to acquire backhauls. Industry Background and Cost Structure Trucking firms generate a variety of revenue types from hauling goods for their clients. Presented next is a brief overview of key types of revenues included in the 2013 income from operations of Over-land Trucking and Freight. Line haul revenue is earned from hauling freight. Fuel prices in recent years have been volatile. Because trucking companies are exposed to fuel price volatility when they sign a long-term contract with their customers, they may charge an additional fee associated with fuel costs when prices exceed predetermined levels. Thus, the primary purpose of the fuel surcharge (FSC) revenue is to protect the truck line from fuel price increases during the contract term. Included in miscellaneous revenue are the following: Storage fees are collected when Over-land stores a loaded trailer on its lot for a customer. Lumper revenue is collected if a driver assists with unloading a trailer. Certain flatbed loads, such as drywall, unpainted steel, and some types of wood products, that would be damaged by rain must be covered. Trucking companies typically charge a tarping fee for such loads. Additional insurance is required when transporting high-value cargo. Practices vary throughout the industry. If a load is above a company’s standard cargo insurance limits, many companies simply will not haul it. Trucking companies that are willing to bind additional cargo coverage normally do so for a fee that covers only the extra cost of insurance. (Alternatively, this revenue line item could have been booked as a reduction to the “Insurance” expense account.) Loads transported on flatbed trailers must be secured by straps or chains. These types of loads often are associated with higher worker’s comp claims. Thus an extra strapping and chaining fee is charged only for a flatbed load. If a truck sits idle at the dock for more than two hours, customers can be charged a fee that is classified as detention revenue. Placing a detention revenue clause in the contract encourages customers to load trailers efficiently in order to avoid further constraints on Over-land’s tractor capacity. 2 Types of Business Arrangements with Drivers Over-land has potentially two arrangements with drivers. They are classified as employees or as independent operators. Employees receive traditional employee benefits and a Form W2 for tax purposes. These persons are typically engaged in work for the company that is considered “permanent.” Alternatively, independent operators are not considered employees and receive a Form 1099 (rather than a Form W2) for tax purposes. These operators typically provide the tractor but generally do not provide the trailer. In addition to driver salaries and depreciation on trucks, expenses incurred by independent contractors include: • Tags (known as International Registration Plan (IRP)) – The independent contractor buys the IRP tag for the tractor, while the shipping company buys the tags for the trailer. • IRS Form 2290 – Heavy Road Use Tax. • Diesel fuel, engine fluids, and all maintenance-related parts and items. • Physical damage insurance. • Non-trucking “bobtail” Liability Insurance (needed for when the truck is not transporting a trailer). • Tolls and scale fees. Independent contractors generally control their own working hours, unlike an employee. Further, independent contractors’ work generally is considered temporary, rather than permanent (unlike for an employee). In the trucking industry, an independent contractor often signs a one-year contract for a temporary job. But an employee is hired permanently under the assumption that he or she will make deliveries until further notice. This arrangement constitutes a permanent job. Capacity Issues and Industry Practices Over-land Trucking typically assigns one driver to one tractor. But this practice can constrain the available hours the tractor can operate. For example, laws require a driver to take a 10-hour break after 11 hours of driving. Further, a driver cannot work more than 70 hours in an eight-day period without taking a 34-hour break. To improve tractor utilization by avoiding constraints based on legal driving time requirements, some trucking companies use “slip seating.” This is a practice that permits greater tractor utilization by placing a fresh driver behind the wheel at the end of the former driver’s shift. Slip seating is similar in practice to an airline company that keeps its planes flying longer by inserting fresh flight crews as the previous crew goes off duty. It also is efficient to utilize “team drivers” that are commonly husband-wife teams. One person drives while the other sleeps. Relative to a single driver, this arrangement basically doubles the amount of miles driven in a given week. Typically, teams are paid more, but additional line haul revenues offset the extra labor costs. Another strategy to improve tractor utilization is to use trailer pools, commonly referred to as “drop and hook” systems. For example, trucking companies will leave an empty trailer with customers, who will load it with products as units are produced. When the trailer is filled, a tractor arrives, drops an empty trailer to replace the trailer just filled, then immediately hooks onto the loaded trailer and departs. Tractor utilization improves because tractors are not sitting idle while a customer loads a trailer. This approach is economically feasible because trailers are far less expensive to purchase and operate than tractors. Most trucking companies keep some tractors “on the fence” as spares, in case one breaks down. There is considerable disagreement, however, over what constitutes too many spares. Some owners believe a truck line should put all available equipment on the road and rent a tractor if a spare is needed. Others disagree 3 and maintain a small number of tractors in reserve. Currently, Over-land Trucking and Freight keeps a small number of tractors and trailers out of service but prepared for duty in case a rig breaks down. Some managers believe this policy is an expensive luxury and that some of these idle rigs could be used to add the new routes requested by FHP. When estimating a tractor’s practical capacity, management at Over-land use 85% of total potential miles driven in a period. Theoretical (or 100%) capacity utilization is virtually impossible in the industry because of factors such as traffic and loading delays. The Proposal and Related Issues Management at FHP has asked Over-land to consider adding two dry van loads per week; each load would require 1,500 round-trip miles. Because FHP is a long-term client with a strong financial position, the company’s management has asked for a very favorable rate of $2.15 per mile including FSC and all miscellaneous fees. Roger believes the potential volume of freight from FHP can be used to grow Overland’s business and profitability. There is also risk associated with not taking the new lines. If Over-land does not accept the new routes, another trucking line will, thus building loyalty with FHP. FHP is a stable, solvent company that presents no question of collection, thus ensuring a reliable cash flow. If FHP decides to restructure its supply chain in the future, Over-land could find itself in the undesirable position of holding dedicated assets (trucks and trailers) for routes that no longer exist. The owner’s aversion to increased debt levels further exacerbates concerns about acquiring additional fixed assets. Perhaps Over-land could service the initial demand with existing equipment. But, as additional routes are added in the future, Over-land must acquire more tractor-trailer rigs or consider outsourcing the miles by using independent contractors.

Questions

Over-land’s management is considering the proposal from FHP. There are many issues involving strategy,
cost, risk, and capacity. Prepare a recommendation to management. Use the following questions to guide
your analysis.

1. Assume Over-land could service the contract with existing equipment. Use Exhibit 1 to identify the
   relevant costs concerning the acceptance of FHP’s request to add two additional loads per week. Which
   costs are not relevant? Why?
2. Calculate the contribution per mile and total annual contribution associated with accepting FHP’s
   proposal. What do you recommend? (Use 52 weeks per year in your calculations.)
3. Consider the strategic implications (including risks) associated with expanding (or choosing not to
   expand) operations to meet the demands of FHP. Analyze this question from a conceptual point of view.
   Calculations are not necessary.
4. After a closer examination of capacity, management believes an additional rig is required to service the
   FHP account. Assume Over-land’s management chooses to invest in one additional truck and trailer that
   can serve the needs of FHP (at least initially). Assume the annual incremental fixed costs associated with
   acquiring the additional equipment is $50,000. Further, FHP would agree to pay $2.20 per mile (total
   including FSC and miscellaneous) if Over-land would sign a five-year contract. What is the annual
   number of miles required for Over-land to break even, assuming the company adds one truck and trailer? What is the expected annual increase in profitability from the FHP contract? (Use 52 weeks per year in
   your calculations.)
5. Over-land has business relationships with independent contractors, though Alan is reluctant to use them.
   Another possibility for expanding capacity is to outsource the miles requested by FHP. One of Overland’s
   most reliable independent contractors has quoted a rate of $1.65 per mile. As with question 4,
   assume FHP would agree to pay $2.20 per mile if Over-land would sign a five-year contract. Further,
   assume Over-land would incur incremental fixed costs of $20,000 annually. These costs would include
   insurance, rental trailers, certain permits, salaries and benefits of garage maintenance, and office salaries
   such as billing. How many annual miles are required for Over-land to break even if the miles are
   outsourced? What is the expected annual increase in profitability from the FHP contract? What are your
   conclusions?
6.     6a Why might Over-land use an independent operator if the variable cost per mile is higher than if the
       company had purchased a rig and hired a driver?

6b. At what point would management be indifferent between the scenarios illustrated in questions 4 and 5? Based on your analysis, would you recommend adding capacity by purchasing an additional rig or by utilizing the services of an independent contractor? Why?

Case Study Over-land Trucking and Freight: Relevant Costs for Decision Making Background Over-land Trucking and Freight has a long-established and mutually beneficial business relationship with a major international automotive parts company, FHP Technologies. Management at FHP has approached Over-land with a request to provide additional routes that are important to the efficiency of its supply chain. Over-land’s management wishes to nurture the business relationship with FHP but is concerned about the available capacity to service the new routes, potential risks, and profitability associated with FHP’s request. Introduction Alan James founded Over-land Trucking and Freight in 1968 and has grown the business into a sizeable operation with 90 trucks and 180 trailers. His largest customer, FHP Technologies, has submitted a proposal to him to add delivery routes that would improve the efficiency of FHP’s supply chain. Alan was not certain that Over-land could handle the additional routes since the company currently was operating at (or near) full capacity. FHP offered a total of $2.15 per mile (including fuel service charge and miscellaneous fees) for the new route. But Alan knew that to accept the offer he would have to add more trucks and perhaps incur additional debt. The question was whether the rates offered by FHP were high enough to offset the associated risks of growing the fleet. Although the business had been grown organically through the years by reinvesting profits, it incurred debt from time to time to replace older equipment (usually in blocks of five trucks). Alan knew the slim profit margins associated with trucking, coupled with a downturn in the economy, could spell disaster if saddled with too much debt. See Exhibits 1 and 2 for the company’s most recent statement of income from operations and the balance sheet, respectively. Roger Simmons, Over-land’s operations manager for the past 16 years, had been reviewing the FHP proposal and approached Alan. “Alan, we need to discuss this offer from FHP. I think it is a great opportunity for our company, and we need to find a way to make it work.” Within 10 minutes Alan and Roger were in a closed-door meeting discussing the pros and cons of FHP’s offer. Roger began by stating the obvious: “Alan, this is a huge opportunity for us to grow the business. Not to mention, as FHP becomes more dependent on our services, we will be in a stronger position to negotiate future rate increases. I know you are opposed to debt, and I understand the risks of carrying more debt, but there is more than one way to grow our fleet. If you would consider using independent contract drivers, we could grow the fleet enough to accept FHP’s offer without incurring more debt.” Alan cringed at the thought of using independent contract drivers. Although independent contractors owned their own trucks, Alan viewed them as difficult to deal with and not worth the headache. “Roger, I hear you, but this new route will not last a week if we cannot give FHP great service. Independent contractors call the shots, not us. They own the rig and will sit at home if they want to. I would rather deal with our own company’s rigs and drivers. The rewards just do not justify the risks of damaging our relationship with FHP. “But I am not sure we should take on any more debt at this point to purchase additional rigs. The economy is in the tank, and it is a bad time for us to leverage the balance sheet any further. Roger, my success in this business was not built by jumping on every offer that came along. Sometimes you have to say no, even to your biggest customer. Unless you can find a way to squeeze out more capacity within our current fleet, I just do not think we can accept FHP’s offer at this time,” Alan concluded. As the two men left the room, Roger was convinced that Alan was wrong. Roger knew that Alan was leaving money on the table. He just needed to prepare a financial analysis that would prove it. Was it 1 possible to squeeze out more capacity from an already fully utilized fleet? Perhaps they could shift trucks from another account. Was taking on more debt truly “risky” given the profit potential of this new route? Roger knew he had to make a convincing argument before FHP took its offer to another truck line. Industry Terms • A tractor-trailer rig is a truck that consists of a tractor attached to a trailer. The tractor typically is powered by a diesel engine. • A flatbed trailer is long flat platform with no sides. • A dry van trailer is a boxed cargo compartment designed for nonrefrigerated freight. • Trucking companies often have a revenue-generating load in one direction but need a revenue-generating contract for the return trip. The return trip is known as a backhaul. Often trucking companies contract with freight brokers to acquire backhauls. Industry Background and Cost Structure Trucking firms generate a variety of revenue types from hauling goods for their clients. Presented next is a brief overview of key types of revenues included in the 2013 income from operations of Over-land Trucking and Freight. Line haul revenue is earned from hauling freight. Fuel prices in recent years have been volatile. Because trucking companies are exposed to fuel price volatility when they sign a long-term contract with their customers, they may charge an additional fee associated with fuel costs when prices exceed predetermined levels. Thus, the primary purpose of the fuel surcharge (FSC) revenue is to protect the truck line from fuel price increases during the contract term. Included in miscellaneous revenue are the following: Storage fees are collected when Over-land stores a loaded trailer on its lot for a customer. Lumper revenue is collected if a driver assists with unloading a trailer. Certain flatbed loads, such as drywall, unpainted steel, and some types of wood products, that would be damaged by rain must be covered. Trucking companies typically charge a tarping fee for such loads. Additional insurance is required when transporting high-value cargo. Practices vary throughout the industry. If a load is above a company’s standard cargo insurance limits, many companies simply will not haul it. Trucking companies that are willing to bind additional cargo coverage normally do so for a fee that covers only the extra cost of insurance. (Alternatively, this revenue line item could have been booked as a reduction to the “Insurance” expense account.) Loads transported on flatbed trailers must be secured by straps or chains. These types of loads often are associated with higher worker’s comp claims. Thus an extra strapping and chaining fee is charged only for a flatbed load. If a truck sits idle at the dock for more than two hours, customers can be charged a fee that is classified as detention revenue. Placing a detention revenue clause in the contract encourages customers to load trailers efficiently in order to avoid further constraints on Over-land’s tractor capacity. 2 Types of Business Arrangements with Drivers Over-land has potentially two arrangements with drivers. They are classified as employees or as independent operators. Employees receive traditional employee benefits and a Form W2 for tax purposes. These persons are typically engaged in work for the company that is considered “permanent.” Alternatively, independent operators are not considered employees and receive a Form 1099 (rather than a Form W2) for tax purposes. These operators typically provide the tractor but generally do not provide the trailer. In addition to driver salaries and depreciation on trucks, expenses incurred by independent contractors include: • Tags (known as International Registration Plan (IRP)) – The independent contractor buys the IRP tag for the tractor, while the shipping company buys the tags for the trailer. • IRS Form 2290 – Heavy Road Use Tax. • Diesel fuel, engine fluids, and all maintenance-related parts and items. • Physical damage insurance. • Non-trucking “bobtail” Liability Insurance (needed for when the truck is not transporting a trailer). • Tolls and scale fees. Independent contractors generally control their own working hours, unlike an employee. Further, independent contractors’ work generally is considered temporary, rather than permanent (unlike for an employee). In the trucking industry, an independent contractor often signs a one-year contract for a temporary job. But an employee is hired permanently under the assumption that he or she will make deliveries until further notice. This arrangement constitutes a permanent job. Capacity Issues and Industry Practices Over-land Trucking typically assigns one driver to one tractor. But this practice can constrain the available hours the tractor can operate. For example, laws require a driver to take a 10-hour break after 11 hours of driving. Further, a driver cannot work more than 70 hours in an eight-day period without taking a 34-hour break. To improve tractor utilization by avoiding constraints based on legal driving time requirements, some trucking companies use “slip seating.” This is a practice that permits greater tractor utilization by placing a fresh driver behind the wheel at the end of the former driver’s shift. Slip seating is similar in practice to an airline company that keeps its planes flying longer by inserting fresh flight crews as the previous crew goes off duty. It also is efficient to utilize “team drivers” that are commonly husband-wife teams. One person drives while the other sleeps. Relative to a single driver, this arrangement basically doubles the amount of miles driven in a given week. Typically, teams are paid more, but additional line haul revenues offset the extra labor costs. Another strategy to improve tractor utilization is to use trailer pools, commonly referred to as “drop and hook” systems. For example, trucking companies will leave an empty trailer with customers, who will load it with products as units are produced. When the trailer is filled, a tractor arrives, drops an empty trailer to replace the trailer just filled, then immediately hooks onto the loaded trailer and departs. Tractor utilization improves because tractors are not sitting idle while a customer loads a trailer. This approach is economically feasible because trailers are far less expensive to purchase and operate than tractors. Most trucking companies keep some tractors “on the fence” as spares, in case one breaks down. There is considerable disagreement, however, over what constitutes too many spares. Some owners believe a truck line should put all available equipment on the road and rent a tractor if a spare is needed. Others disagree 3 and maintain a small number of tractors in reserve. Currently, Over-land Trucking and Freight keeps a small number of tractors and trailers out of service but prepared for duty in case a rig breaks down. Some managers believe this policy is an expensive luxury and that some of these idle rigs could be used to add the new routes requested by FHP. When estimating a tractor’s practical capacity, management at Over-land use 85% of total potential miles driven in a period. Theoretical (or 100%) capacity utilization is virtually impossible in the industry because of factors such as traffic and loading delays. The Proposal and Related Issues Management at FHP has asked Over-land to consider adding two dry van loads per week; each load would require 1,500 round-trip miles. Because FHP is a long-term client with a strong financial position, the company’s management has asked for a very favorable rate of $2.15 per mile including FSC and all miscellaneous fees. Roger believes the potential volume of freight from FHP can be used to grow Overland’s business and profitability. There is also risk associated with not taking the new lines. If Over-land does not accept the new routes, another trucking line will, thus building loyalty with FHP. FHP is a stable, solvent company that presents no question of collection, thus ensuring a reliable cash flow. If FHP decides to restructure its supply chain in the future, Over-land could find itself in the undesirable position of holding dedicated assets (trucks and trailers) for routes that no longer exist. The owner’s aversion to increased debt levels further exacerbates concerns about acquiring additional fixed assets. Perhaps Over-land could service the initial demand with existing equipment. But, as additional routes are added in the future, Over-land must acquire more tractor-trailer rigs or consider outsourcing the miles by using independent contractors. Questions Over-land’s management is considering the proposal from FHP. There are many issues involving strategy, cost, risk, and capacity. Prepare a recommendation to management. Use the following questions to guide your analysis. Assume Over-land could service the contract with existing equipment. Use Exhibit 1 to identify the relevant costs concerning the acceptance of FHP’s request to add two additional loads per week. Which costs are not relevant? Why? Calculate the contribution per mile and total annual contribution associated with accepting FHP’s proposal. What do you recommend? (Use 52 weeks per year in your calculations.) Consider the strategic implications (including risks) associated with expanding (or choosing not to expand) operations to meet the demands of FHP. Analyze this question from a conceptual point of view. Calculations are not necessary. After a closer examination of capacity, management believes an additional rig is required to service the FHP account. Assume Over-land’s management chooses to invest in one additional truck and trailer that can serve the needs of FHP (at least initially). Assume the annual incremental fixed costs associated with acquiring the additional equipment is $50,000. Further, FHP would agree to pay $2.20 per mile (total including FSC and miscellaneous) if Over-land would sign a five-year contract. What is the annual number of miles required for Over-land to break even, assuming the company adds one truck and trailer? What is the expected annual increase in profitability from the FHP contract? (Use 52 weeks per year in your calculations.) Over-land has business relationships with independent contractors, though Alan is reluctant to use them. Another possibility for expanding capacity is to outsource the miles requested by FHP. One of Overland’s most reliable independent contractors has quoted a rate of $1.65 per mile. As with question 4, assume FHP would agree to pay $2.20 per mile if Over-land would sign a five-year contract. Further, assume Over-land would incur incremental fixed costs of $20,000 annually. These costs would include insurance, rental trailers, certain permits, salaries and benefits of garage maintenance, and office salaries such as billing. How many annual miles are required for Over-land to break even if the miles are outsourced? What is the expected annual increase in profitability from the FHP contract? What are your conclusions? 6a Why might Over-land use an independent operator if the variable cost per mile is higher than if the company had purchased a rig and hired a driver? 6b. At what point would management be indifferent between the scenarios illustrated in questions 4 and 5? Based on your analysis, would you recommend adding capacity by purchasing an additional rig or by utilizing the services of an independent contractor? Why?