Question

Assume you were recently hired as the director of the Solid Waste Department for Murky County. Your department operates both a solid waste collection system (a fleet of garbage trucks), and a landfill where garbage is disposed. Only garbage from the county is disposed at the landfill, and all county garbage is now collected by your department. Your budget has been funded by user charges paid by residents of the county based on the volume of garbage. The charge is $1.3 per bag of garbage collected. The county provides the bags free of charge to residents and only garbage in these bags is collected. (You can assume that garbage collection for business is handled separately.) Unfortunately, recent increases in the cost of fuel, salaries, and chemicals have led to deficits in the "Solid Waste Fund" and have had to be subsidized by county property taxes. The County Administrator is looking for recommendations on how this deficit can be eliminated. Before undertaking this analysis, you have collected the following information on the present operation: 1) Overhead costs: $500,000 2) Present demand for service: 100,000 bags per week. You can assume that there will be demand for collection of 100,000 bags per week for 52 weeks per year. (You can assume that the demand is the same for both collection and disposal.) Solid Waste Collection Division: Solid waste is collected for 8 hours per day, 5 days per week, for 52 weeks. 3) Solid waste collectors: there are 107 fulltime collectors. Salary for a collector is $30,000 per year (which includes fringe benefits). 4) Each garbage truck has two solid waste collectors, they together collect 50 bags per hour. (i.e. a garbage truck can collect 50 bags of solid waste per hour). 5) Each truck is leased at a rate of $15,000 per year. 6) The cost per hour for fuel for the truck is $7 per hour. Solid Waste Disposal Division: The waste landfill is operated 6 days per week, 10 hours per day, 52 weeks per year. 7) Facility costs including debt service, and insurance cost of $1,000,000 per year. The landfill is considered to be large enough to handle any volume of garbage in the near future. 8) Supplies to operate the landfill cost $416,000 last year to service 80,000 bags of garbage per week (52 weeks per year). You can assume for simplicity no inflation this year. 9) Landfill operators work fulltime. They make $40,000 per year (which includes fringe benefits). The department has 17 landfill operators. Based on this information, answer the following questions: (Make sure you show your work!) a) Calculate unit costs for each division and for the whole department, and calculate the overall level of the surplus or deficit. Allocate indirect costs by the share of direct personnel b) Assume that the county executive is thinking of privatizing the garbage collection part of the operation. A private company, Waste Management, Inc., has offered to collect the garbage for a fee of $0.75 per bag. Would the County potentially save money if it contracted out the service to Waste Management? Show how you came to your conclusions. What assumptions did you make? What are some other factors that should be considered in making this decision?

Your budget has been funded by user charges paid by residents of the county based on the volume of garbage. The charge is $1.3 per bag of garbage collected. The county provides the bags free of charge to residents and only garbage in these bags is collected. (You can assume that garbage collection for business is handled separately.) Unfortunately, recent increases in the cost of fuel, salaries, and chemicals have led to deficits in the "Solid Waste Fund" and have had to be subsidized by county property taxes. The County Administrator is looking for recommendations on how this deficit can be eliminated.

Before undertaking this analysis, you have collected the following information on the present operation:
1) Overhead costs: $500,000
2) Present demand for service: 100,000 bags per week. You can assume that there will be demand for collection of 100,000 bags per week for 52 weeks per year. (You can assume that the demand is the same for both collection and disposal.)

Solid Waste Collection Division: Solid waste is collected for 8 hours per day, 5 days per week, for 52 weeks.
3) Solid waste collectors: there are 107 fulltime collectors. Salary for a collector is $30,000 per year (which includes fringe benefits).
4) Each garbage truck has two solid waste collectors, they together collect 50 bags per hour. (i.e. a garbage truck can collect 50 bags of solid waste per hour).
5) Each truck is leased at a rate of $15,000 per year.
6) The cost per hour for fuel for the truck is $7 per hour.

Solid Waste Disposal Division: The waste landfill is operated 6 days per week, 10 hours per day, 52 weeks per year.
7) Facility costs including debt service, and insurance cost of $1,000,000 per year. The landfill is considered to be large enough to handle any volume of garbage in the near future.
8) Supplies to operate the landfill cost $416,000 last year to service 80,000 bags of garbage per week (52 weeks per year). You can assume for simplicity no inflation this year.
9) Landfill operators work fulltime. They make $40,000 per year (which includes fringe benefits). The department has 17 landfill operators.

Based on this information, answer the following questions: (Make sure you show your work!)

a) Calculate unit costs for each division and for the whole department, and calculate the overall level of the surplus or deficit. Allocate indirect costs by the share of direct personnel
b) Assume that the county executive is thinking of privatizing the garbage collection part of the operation. A private company, Waste Management, Inc., has offered to collect the garbage for a fee of $0.75 per bag. Would the County potentially save money if it contracted out the service to Waste Management? Show how you came to your conclusions. What assumptions did you make? What are some other factors that should be considered in making this decision?

Assume you were recently hired as the director of the Solid Waste Department for Murky County. Your department operates both a solid waste collection system (a fleet of garbage trucks), and a landfill where garbage is disposed. Only garbage from the county is disposed at the landfill, and all county garbage is now collected by your department.

Your budget has been funded by user charges paid by residents of the county based on the volume of garbage. The charge is 1.3 per bag of garbage collected. The county provides the bags free of charge to residents and only garbage in these bags is collected. (You can assume that garbage collection for business is handled separately.) Unfortunately, recent increases in the cost of fuel, salaries, and chemicals have led to deficits in the "Solid Waste Fund" and have had to be subsidized by county property taxes. The County Administrator is looking for recommendations on how this deficit can be eliminated.

Before undertaking this analysis, you have collected the following information on the present operation:
1) Overhead costs:500,000
2) Present demand for service: 100,000 bags per week. You can assume that there will be demand for collection of 100,000 bags per week for 52 weeks per year. (You can assume that the demand is the same for both collection and disposal.)

Solid Waste Collection Division: Solid waste is collected for 8 hours per day, 5 days per week, for 52 weeks.
3) Solid waste collectors: there are 107 fulltime collectors. Salary for a collector is 30,000 per year (which includes fringe benefits).
4) Each garbage truck has two solid waste collectors, they together collect 50 bags per hour. (i.e. a garbage truck can collect 50 bags of solid waste per hour).
5) Each truck is leased at a rate of15,000 per year.
6) The cost per hour for fuel for the truck is 7 per hour.

Solid Waste Disposal Division: The waste landfill is operated 6 days per week, 10 hours per day, 52 weeks per year.
7) Facility costs including debt service, and insurance cost of1,000,000 per year. The landfill is considered to be large enough to handle any volume of garbage in the near future.
8) Supplies to operate the landfill cost 416,000 last year to service 80,000 bags of garbage per week (52 weeks per year). You can assume for simplicity no inflation this year.
9) Landfill operators work fulltime. They make40,000 per year (which includes fringe benefits). The department has 17 landfill operators.

Based on this information, answer the following questions: (Make sure you show your work!)

a) Calculate unit costs for each division and for the whole department, and calculate the overall level of the surplus or deficit. Allocate indirect costs by the share of direct personnel
b) Assume that the county executive is thinking of privatizing the garbage collection part of the operation. A private company, Waste Management, Inc., has offered to collect the garbage for a fee of 0.75 per bag. Would the County potentially save money if it contracted out the service to Waste Management? Show how you came to your conclusions. What assumptions did you make? What are some other factors that should be considered in making this decision?

Added by Carol C.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Akash M

12/14/2023

Step 1

Solid Waste Collection Division: - Salary for collectors: 107 collectors * $30,000 = $3,210,000 - Truck lease: $15,000 per truck. Since each truck has two collectors, we have 107/2 = 53.5 trucks. Since we can't have half a truck, we'll round up to 54 trucks. So, Show more…

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Assume you were recently hired as the director of the Solid Waste Department for Murky County. Your department operates both a solid waste collection system (a fleet of garbage trucks), and a landfill where garbage is disposed. Only garbage from the county is disposed at the landfill, and all county garbage is now collected by your department. Your budget has been funded by user charges paid by residents of the county based on the volume of garbage. The charge is $1.3 per bag of garbage collected. The county provides the bags free of charge to residents and only garbage in these bags is collected. (You can assume that garbage collection for business is handled separately.) Unfortunately, recent increases in the cost of fuel, salaries, and chemicals have led to deficits in the "Solid Waste Fund" and have had to be subsidized by county property taxes. The County Administrator is looking for recommendations on how this deficit can be eliminated. Before undertaking this analysis, you have collected the following information on the present operation: 1) Overhead costs: $500,000 2) Present demand for service: 100,000 bags per week. You can assume that there will be demand for collection of 100,000 bags per week for 52 weeks per year. (You can assume that the demand is the same for both collection and disposal.) Solid Waste Collection Division: Solid waste is collected for 8 hours per day, 5 days per week, for 52 weeks. 3) Solid waste collectors: there are 107 fulltime collectors. Salary for a collector is $30,000 per year (which includes fringe benefits). 4) Each garbage truck has two solid waste collectors, they together collect 50 bags per hour. (i.e. a garbage truck can collect 50 bags of solid waste per hour). 5) Each truck is leased at a rate of $15,000 per year. 6) The cost per hour for fuel for the truck is $7 per hour. Solid Waste Disposal Division: The waste landfill is operated 6 days per week, 10 hours per day, 52 weeks per year. 7) Facility costs including debt service, and insurance cost of $1,000,000 per year. The landfill is considered to be large enough to handle any volume of garbage in the near future. 8) Supplies to operate the landfill cost $416,000 last year to service 80,000 bags of garbage per week (52 weeks per year). You can assume for simplicity no inflation this year. 9) Landfill operators work fulltime. They make $40,000 per year (which includes fringe benefits). The department has 17 landfill operators. Based on this information, answer the following questions: (Make sure you show your work!) a) Calculate unit costs for each division and for the whole department, and calculate the overall level of the surplus or deficit. Allocate indirect costs by the share of direct personnel b) Assume that the county executive is thinking of privatizing the garbage collection part of the operation. A private company, Waste Management, Inc., has offered to collect the garbage for a fee of $0.75 per bag. Would the County potentially save money if it contracted out the service to Waste Management? Show how you came to your conclusions. What assumptions did you make? What are some other factors that should be considered in making this decision?