Variable Cost and Large Vessel
CASE STUDY
Tashtego
Advanced Topics in Management Accounting and Control
The purpose of this paper is to analyze the economic situation of the company Macedonian Shipping and give a recommendation whether the company should use the motor vessel Tashtego as a freight tender beween Dar-es-Salaam and Zanzibar in East Africa or as a tapioca ship between Balik Papan and Singapore in the East Indies.
Fundamental to all these considerations are measurement issues. Financial measures, in particular, cost measures, are needed to evaluate alternate strategies on whether to introduce a new product or service line, to determine the appropriate sale price and the consequent market position for the firm’s product.
Question 1)
“Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs.
To compute profit contribution that can be earned by carrying 1 ton of tapioca from Balik Papan to Singapore, dock to dock, and 1 ton of general merchandise goods from Singapore to Balik Papan only cargo costs were considered as relevant. Cargo costs of both ports have to be considered as each freight has to be reloaded at one port and unloaded at the other.
Therefore, profit contribution of carrying 1 ton of tapioca from Balik and Singapore is
Expected revenue $5.10 less freight cost 1,43 = $ 3,67 and from Singapore to Balik:
Expected Revenue $2.70 less freight cost 1,43 = 1,27.
1. Contribution/t dock to dock | | | |
| | | |
| BP-SP Tapioca | | SP-BP M. goods |
| | | |
Revenue/t | | 5,10 | 2,70 |
| | | |
Lighterage BP | 0,25 | | |
Stevedoring BP | 0,56 | | |
Cranage BP | 0,00 | | |
Lighterage SP | 0,16 | | |
Stevedoring SP | 0,32 | | |
Cranage SP | 0,14 | | |
Cargo costs/t | | 1,43 | 1,43 |
Contribution/t | | 3,67 | 1,27 |
There is no cranage charge in Balik Papan because the freight in this port is manhandled.
Question 2)
The total contribution that can be earned on one round trip
Tashtego
Advanced Topics in Management Accounting and Control
The purpose of this paper is to analyze the economic situation of the company Macedonian Shipping and give a recommendation whether the company should use the motor vessel Tashtego as a freight tender beween Dar-es-Salaam and Zanzibar in East Africa or as a tapioca ship between Balik Papan and Singapore in the East Indies.
Fundamental to all these considerations are measurement issues. Financial measures, in particular, cost measures, are needed to evaluate alternate strategies on whether to introduce a new product or service line, to determine the appropriate sale price and the consequent market position for the firm’s product.
Question 1)
“Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs.
To compute profit contribution that can be earned by carrying 1 ton of tapioca from Balik Papan to Singapore, dock to dock, and 1 ton of general merchandise goods from Singapore to Balik Papan only cargo costs were considered as relevant. Cargo costs of both ports have to be considered as each freight has to be reloaded at one port and unloaded at the other.
Therefore, profit contribution of carrying 1 ton of tapioca from Balik and Singapore is
Expected revenue $5.10 less freight cost 1,43 = $ 3,67 and from Singapore to Balik:
Expected Revenue $2.70 less freight cost 1,43 = 1,27.
1. Contribution/t dock to dock | | | |
| | | |
| BP-SP Tapioca | | SP-BP M. goods |
| | | |
Revenue/t | | 5,10 | 2,70 |
| | | |
Lighterage BP | 0,25 | | |
Stevedoring BP | 0,56 | | |
Cranage BP | 0,00 | | |
Lighterage SP | 0,16 | | |
Stevedoring SP | 0,32 | | |
Cranage SP | 0,14 | | |
Cargo costs/t | | 1,43 | 1,43 |
Contribution/t | | 3,67 | 1,27 |
There is no cranage charge in Balik Papan because the freight in this port is manhandled.
Question 2)
The total contribution that can be earned on one round trip