Easter Talon Transport - Relevant Costing

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Eastern Talon Transport Relocation Analysis: The Concepts of Relevant Costing

Case Study 1 Report

Prepared By:

Executive Summary

Companies always strive to create value for their customers. In the Canadian trucking industry, over $30 billion in revenues were generated by for-hire companies such as Eastern Talon Transport and to attain a sizeable share of these revenues, it must also strive to create value for it’s customers. In 2004, value is more important than ever. Trade activity between Canada and the United States declined and has resulted in a 1% decline in revenues. With rising costs of fuel and insurance, profitability within the industry begins to slide. Both of these factors have caused Eastern Talon Transport to consider options to reduce costs.

The alternative most favoured is to move long-haul dispatch operations from Laval, Quebec to Mississauga, Ontario. The report considers what benefits and set-backs would result in this move, and that ultimately moving operations to Mississauga is recommended as the most beneficial scenario for ETT.

This report involves analysis of both qualitative and quantitative factors. In moving operations, productivity increases by 23%. As a direct result, head count can be reduced and a savings in salary expenses of $676,000 will be seen, in addition to savings of $500,000 in the lease of Laval office space. Costs are also reviewed and it is determined that a one-time of $1,768,500 would be incurred in the move and savings would be realized after approximately 1.5 years.

Introduction:

The purpose of this report is to establish the feasibility and justification of moving Eastern Talon Transport’s long-haul dispatch operations from Laval, Quebec to Mississauga, Ontario. A recommendation will be made subsequent to, and in consideration of a review of both qualitative and quantitative analysis.

Quantitative Analysis

Size of the Long-haul Operations Department:

In moving operations from Laval to Mississauga, dispatchers would be placed on the same floor as the accounting department and would result in a reduction of 40% in communication time between dispatchers and billing personnel. Taking into considering that delivery logistics is nearly 58% of daily tasks performed in Laval, this would translate to a total of 23% increased productivity per dispatcher over an average work day if moved to Mississauga. As such, the size of the long-haul operations department could effectively be reduced from 45 to 35 dispatchers and managerial positions reduced to 3.

| |Laval (Hrs)* |% of Daily |Mississauga (Hrs)* |% of Daily|Change in | | | |Tasks | |Tasks |Productivity | |Customer Service |2.50 |38.50% |2.50 |50% | | |Miscellaneous Admin |0.25 |3.80% |0.25 |5% | | | | | | | | | |Total |6.5 |100% |5 |100% |+23% |

*Task breakdown assumes total productive hours in a typical day

Differential Analysis

Recurring / Differential Inflows or Savings:

A decrease in time spent on delivery logistics and total increases in productivity will allow ETT to reduce staff to 35 dispatchers and 3 managers if moved to Mississauga. ETT would see recurring savings in respect to dispatcher and managerial salaries at $146,000 and $530,000 respectively, per year and equates to a total year savings in salary expenses of $676,000.

In addition, the Mississauga office building is wholly...
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