Transportation Cost Assignment
Chapter 4 – Costing and Pricing for Transportation
Transportation costs are comprised of fixed and variable costs. Fixed represent costs which are incurred regardless of items such as weight, volume, time, length of travel, etc. Variable are costs which depend on the length of the transit, on the weight or volume of the freight, time incurred, etc.
See the Appendices in Chapter 4. Appendix 4A (See the attached file) discusses general cost concepts, which are valuable to know for any business major. Appendix 4B (See the attached file) discusses the costs associated with Less-than-Truckload (LTL) and Truck-load (TL) freight. This is what this assignment will focus on.
I strongly suggest that you perform this exercise in Excel. Please show ALL CALCULATIONS! No credit will be given for a numeric answer that is not supported with calculations.
Note: For this course, we will not compute the equipment, depreciation and interest costs.
With the information given below, answer the three questions presented:
- For the following scenario, calculate the total cost for this shipment of truckload freight:
A customer has 48 pallets of consumer goods that they need transported from their manufacturing plant in Joliet, IL to their warehouse located in Philadelphia, PA. The distance between these two locations is 765 miles. The 48 pallets will fit into one truckload. They want to hire Saints Trucking Company to haul this shipment for them in one of their tractor-trailer trucks. Saints has a reputation for careful freight handling and arriving to the destination when promised. The Saints truck driver needs to pick up the freight at the facility in Joliet, drive to Philadelphia, and then unload at the warehouse in Philadelphia. Each loading or unloading activity takes one hour.
Costing and Pricing for Transportation
- If the driver arrived at the Joliet facility at 8am on Monday (and assume the manufacturer was ready to start the loading process at that time), when would the driver be ready to leave the facility in Philadelphia? When would Saints promise that the shipment would arrive?
- If the Saints trucking company uses a pricing model similar to cost-of-service, and they charge 20% above the cost of service (for their profit margin), what would the customer pay for this shipment?
Assume no costs for the driver or truck/trailer to get to Joliet, or to leave Philadelphia.
| Driver Information: | |
| Driver labor (while driving or working): $ per hour | 30 |
| Driver labor (any non-work time away from home): $ per hour | 15 |
| Overnight cost for driver meals, lodging, etc. $ per night away from home | 100 |
| Maximum hours driver can drive without a break: in hours | 9 |
| Minimum break length: in hours (after which the driver can drive again) | 8 |
| Truck Information: | |
| Truck fuel cost: $ per mile | 3 |
| Insurance and Maintenance cost: $ per mile | 0.25 |
| Average speed of travel: in miles/hour | 45 |
| Cost of truck when it is not being driven: $ per hour | 20 |