Triangle business service inc tbs is a delivery service

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Reference no: EM13604175

Triangle Business Service Inc. (TBS) is a delivery service specializing in small parcels, envelopes, and packages. TBS guarantees delivery of within 90 minutes for any business or residence in the Triangle area. The owner of the business is currently evaluating the choice between two different cost structures for a planned increase in the business operations. One option is to buy 200 vehicles and hire delivery personnel to deliver the packages. Option two is to hire delivery personnel who would use their owen vehicles for deliveries; the delivery personnel in this case would be compensated for their time and alsofor the use of their vehicles. For corporate purposes, the delivery personnel under option two would be required to attach a magnetic decal to their car or truck to identify it as a provider for TBS. Option one is the high fixed cose, high leverage option, and option two has the lower fixed cost but significantly higher variable cost. For simplicity, we assume that each package is delivered for the same prie of $60. Item Drivers' Cars TBS's Cars Delivery price per package $60 $60 Variable cost per package delivered 48 30 Contribution margin per unit 12 30 Fixed cost (per year) $600,000 $3,000,000 Required

1. What is the breakeven point in terms of number of deliveries per year, for the each alternative?

2. How many deliveries would have to be made under each alternative to generate a pretax profit of $25,000 per year?

3. How many deliveries would have to be made under option two to generate a pretax profit equal to 15% of sales revenue?

4. Assume an effective income-tax rate of 40%. What number of deliveries would be needed to generate an after-tax profit of $36,000 for the TBS-Cars alternative?

5. Which decision is the more profitable for TBS? Which alternative is more risky, and why?

Reference no: EM13604175

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