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Breakeven
Excellent Beer & Beverage Distributors
Company email
FROM: Ross Terna, Manager of Purchasing
Danny Wilco
Re: Quotes on Dock & unloading improvements
I am summarizing the information that we received from Acme Material Handling and Jones Construction regarding their quotes/bids on the work we requested. ~RT
ACME MATERIAL HANDLING QUOTE:
• 1 Acme Speed Roller Conveyor system
• Operating Specs: conveyor speed: 3 ft / second, Max spot load: 250 lb., length 45 ft., width, 3.3 ft.
• Price: $225,000
• Delivery: within 3 weeks upon receipt of order, 20% due on order, 80% due 45 days upon delivery
JONES CONSTRUCTION QUOTE:
• Demolition and rebuild loading dock to include 7.5 ft expansion on length.
• All labor, materials, and other expenses included in price: $175,000.
• Construction starts within 10 days of receipt of order and 10% payment. Estimated construction time is 21 days, with 50% due at completion. Balance of 40% due within 30 days.
NOTES:
Acme Speed Roller
• Estimated annual maintenance costs: $8,200.
• Estimated operating costs, including electric, $1.75-hour.
• Estimated time to unload a vendor delivery: 6.1 trucks / hour, or 9.84 minutes/truck • Annualize purchase price over 10 years is $22,500.
Annual expenses 30,700
Hourly Expenses 42/6.1= 6.9 hours * 1.75 = $12.1 per hour
Jones Construction
• Annualized purchase price over 10 years is $17,500.
• No additional costs
• Time to unload a vendor delivery: 4.2 trucks per hour, or 14.28 minutes/truck, Per Dock Hand
• Two trucks can be unloaded simultaneously with the expanded size of the dock: effective rate is 8.4 trucks per hour.
42/4.2 = 10 * 30 = $300 per day
42/8.4 = 5 * 60 = $300 per hour
Labor rate of Dock Hand for truck unloading: $30/hour.
The ACME system is definitely the biggest upfront investment of the two choices. However, the system pays for itself as an alternative in the long run by comparison. The breakeven point is roughly between 700 and 750 truckloads before it becomes less expensive than the dock option with the higher labor rate. Since the company is projecting to unload approximately 42 truckloads a day, then it becomes the better option in less than a month. The only advantage to the dock system that is apparent is the fact that you can use to dock workers simultaneously to increase the unloading capacity. However, this advantage is unlikely to justify the additional expense.
Breakeven point is a managerial accounting term that relates to the point at which the fixed costs are covered (no author, 2013). The breakeven point can be expressed as a dollar value of revenue, or it can be expressed as a number of units (in a simple one-unit firm). There is a breakeven point for services as well as for goods. For a health care institution, the breakeven point should
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