allocated Tri-State Shipping (TSS) operates a transportation company that offers two services between Chicago and the Twin Cities: long-haul freight and Intra-city package delivery. The company currently operates 20 long-haul tractor-trailers and 30 local delivery vans. The company employs 15 long-haul drivers and 30 delivery van drivers. Recently, due to COVID-19, TSS has been contracted by several grocery store chains to provide local grocery delivery. This is being handled by the intra-city package delivery segment. It is unknown whether the demand for this service will continue post-pandemic. TSS must maintain a station in each city to receive and load freight for both services. The company employs 20 warehouse laborers. Annual operating costs for the two stations are $2,000,000, excluding labor and depreciation. All station costs are allocated equally between the long haul and delivery services. TSS's revenue is a function of miles driven and averages $5 per mile for the long-haul freight services. Revenue for the intra-city package delivery service averages about $8 per mile. The TSS segmented Income statement for last year is below: Long Haul Freight $5,000,000 Package Delivery Total $5,000,000 $4,000,000 4.000.000 Revenue: Long-haul (average $5 per mile) Delivery (average $8 per mile) Total Revenue Expenses Driver Labor Warehouse labor $5,000,000 $4,000,000 $9,000,000 $1,000,000 250,000 $900,000 250,000 $1,900,000 500,000 2,000,000 1,000,000 1,500,000 500.000 1,000,000 500,000 2.500.000 2.000.000 2.000.000 Vehicle Operating costs Station Operating Costs Depreciation (Stations & Vehicles) Total expenses Operating Income (Loss) $5,750,000 $(750,000) $3,150,000 850,000 $8,900,000 $100,000 Mr. Axel, the President of TSS, reviewed the financial statement and thought the company should drop the long-haul service because it was losing money. The Controller of TSS knew the company would still need the two stations and warehouse labor for the delivery service and that those costs would be unavoidable. However, the Vice-President for Finance sald the freed-up space could probably rent for $1,500,000 annually and the existing long-haul trucks could be sold for about $3 million cash. QUESTIONS/REQUIRED A. Articulating the Problem - Why is the company considering dropping the long-haul trucking segment? What factors would they want to consider before doing so? Who are the stakeholders in such a decision? B. Evidence - Compute the financial advantage (or disadvantage) of dropping the long-haul service next year (year of sale) and for the subsequent year(s). BE SURE TO SHOW ALL COMPUTATIONS TO RECEIVE CREDIT. C. Identify Possible Solutions - Based on your answers to a and b, and the other Information provided what options could the company take to address management's concerns and ensure the long-term health of the company? Name as many as you can think of, given the Information in the problem. D. Recommend Solutions - Based on your findings, would you recommend TSS drop or retain the long-haul service? Of the potential solutions you named in letter c, which would you recommend the company take? Explain why you reached your decision. Further Explanation: - Remember the relevant (avoidable) and Irrelevant (unavoidable) cost concepts that you have learned in Chapter 12-Decision Making - Financial Advantage/Disadvantage Analysis of Dropping the long-haul segment: Consider the positive and negative effects of dropping the long-haul service segment from the perspective of revenue loss and cost-saving. - When you talk (brainstorm) about the possible solutions, you can use the information provided on the segmented Income statement and in the case. - Stakeholders are the groups of people who may get affected by the decision of the company. allocated Tri-State Shipping (TSS) operates a transportation company that offers two services between Chicago and the Twin Cities: long-haul freight and Intra-city package delivery. The company currently operates 20 long-haul tractor-trailers and 30 local delivery vans. The company employs 15 long-haul drivers and 30 delivery van drivers. Recently, due to COVID-19, TSS has been contracted by several grocery store chains to provide local grocery delivery. This is being handled by the intra-city package delivery segment. It is unknown whether the demand for this service will continue post-pandemic. TSS must maintain a station in each city to receive and load freight for both services. The company employs 20 warehouse laborers. Annual operating costs for the two stations are $2,000,000, excluding labor and depreciation. All station costs are allocated equally between the long haul and delivery services. TSS's revenue is a function of miles driven and averages $5 per mile for the long-haul freight services. Revenue for the intra-city package delivery service averages about $8 per mile. The TSS segmented Income statement for last year is below: Long Haul Freight $5,000,000 Package Delivery Total $5,000,000 $4,000,000 4.000.000 Revenue: Long-haul (average $5 per mile) Delivery (average $8 per mile) Total Revenue Expenses Driver Labor Warehouse labor $5,000,000 $4,000,000 $9,000,000 $1,000,000 250,000 $900,000 250,000 $1,900,000 500,000 2,000,000 1,000,000 1,500,000 500.000 1,000,000 500,000 2.500.000 2.000.000 2.000.000 Vehicle Operating costs Station Operating Costs Depreciation (Stations & Vehicles) Total expenses Operating Income (Loss) $5,750,000 $(750,000) $3,150,000 850,000 $8,900,000 $100,000 Mr. Axel, the President of TSS, reviewed the financial statement and thought the company should drop the long-haul service because it was losing money. The Controller of TSS knew the company would still need the two stations and warehouse labor for the delivery service and that those costs would be unavoidable. However, the Vice-President for Finance sald the freed-up space could probably rent for $1,500,000 annually and the existing long-haul trucks could be sold for about $3 million cash. QUESTIONS/REQUIRED A. Articulating the Problem - Why is the company considering dropping the long-haul trucking segment? What factors would they want to consider before doing so? Who are the stakeholders in such a decision? B. Evidence - Compute the financial advantage (or disadvantage) of dropping the long-haul service next year (year of sale) and for the subsequent year(s). BE SURE TO SHOW ALL COMPUTATIONS TO RECEIVE CREDIT. C. Identify Possible Solutions - Based on your answers to a and b, and the other Information provided what options could the company take to address management's concerns and ensure the long-term health of the company? Name as many as you can think of, given the Information in the problem. D. Recommend Solutions - Based on your findings, would you recommend TSS drop or retain the long-haul service? Of the potential solutions you named in letter c, which would you recommend the company take? Explain why you reached your decision. Further Explanation: - Remember the relevant (avoidable) and Irrelevant (unavoidable) cost concepts that you have learned in Chapter 12-Decision Making - Financial Advantage/Disadvantage Analysis of Dropping the long-haul segment: Consider the positive and negative effects of dropping the long-haul service segment from the perspective of revenue loss and cost-saving. - When you talk (brainstorm) about the possible solutions, you can use the information provided on the segmented Income statement and in the case. - Stakeholders are the groups of people who may get affected by the decision of the company