The City of Imperial Falls contracts with Evergren Waste Collection to provide s
ID: 2599879 • Letter: T
Question
The City of Imperial Falls contracts with Evergren Waste Collection to provide solid waste collection to households and businesses. Until recently, Evergren had an exclusive franchise to provide this service in Imperial Falls, which meant that other waste collection firms could not operate legally in the city. The price per pound of waste collected was regulated at 25 percent above the average total cost of collection.
Cost data for the most recent year of operations for Evergren are as follows:
Data on customers for the most recent year are:
The City Council of Imperial Falls is considering allowing other private waste haulers to collect waste from businesses, but not from households. Service to businesses from other waste collection firms would not be subject to price regulation. Based on information from neighboring cities, the price that other private waste collection firms will charge is estimated to be $0.05 per pound (= $100 per ton).
Evergren's CEO has approached the city council with a proposal to change the way costs are allocated to households and businesses, which will result in different rates for households and businesses. She proposes that administrative costs and truck operating costs be allocated based on the number of customers and the other collection costs be allocated based on pounds collected. The total costs allocated to households would then be divided by the estimated number of pounds collected from households to determine the cost of collection. The rate would then be 25 percent above the cost. The rate for businesses would be determined using the same calculation.
Required:
a. Based on cost data from the most recent year, what is the price per pound charged by Evergren for waste collection under the current system (the same rate for both types of customers)? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
b. Based on cost and waste data from the most recent year, complete the following table to determine the price per pound charged to households and to businesses by Evergren for waste collection if the CEO's proposal were accepted? (Do not round intermediate calculations. Round your "Average allocated cost per pound" and "Price" answers to 4 decimal places.)
Administrative cost $ 419,000 Operating costs—trucks 1,375,000 Other collection costs 339,000Explanation / Answer
a) Calculation of Price per pound for the current system (Amount in $)
b) Total administration costs and operating cost of trucks = $419,000+$1,375,000 = $1,794,000
Total Number of customers = 13,900+6,800 = 20,700
Administrative and truck operating costs per customer = $1,794,000/20,700 = $86.6666
Total collection cost = $339,000
Total waste collected (in pounds) = 43,400,000
Collection cost per pound = $339,000/43,400,000 = $0.007811
Calculation of price per pound for the proposed system (Amount in $)
Administrative cost (A) 410,000 Operating Costs-Trucks (B) 1,375,000 Other collection costs (C) 339,000 Total Costs (D = A+B+C) 2,124,000 Total waste collected (in tons) (5,900+15,800) (E) 21,700 Total waste collected (in pounds) (1 ton = 2,000 pound) (21,700*2,000) (F) 43,400,000 Average cost per pound (G = D/F) 0.0489 Price charged per pound (G*1.25) 0.061