Any chance anyone can help me out with this case and 2 questions to follow. would appreciate any help.
Envoy American Inc . is a growing company that specializes in providing seniors with convenient and safe transportation . The company subcontracts drivers to provide the service . The company has the following cost structure :" Fixed cost : Salary for a dozen employees ( $50 , 000 / month ) , office expense ( $16 , 000 / month ) , marketing cost ( $7 , 000 / month ) Variable cost : $18 - 20 / hour for the driver based on their location and thereafter paid by $ 1 for each 3 minutes . The driver pays for all costs related to the car ( e.g., insurance , maintenance ) . The company has a revenue of $2 million in 2018 with about $ 100, 000 net profit . Current pricing policy :" Round trips ( 2 one ways ) : $39 per hour while driving , minimum one hour , then billed by the minute after the first hour at the rate of $0. 65 per minute ( $39 divided by 60 ) .` $20 per hour while waiting , minimum one hour , then billed by the minute after the first hour at the rate of $0. 3 3 per minute ( $20 divided by 60 ) . 30% of revenues come from round trips including 10% of revenues* coming from trips that the 2 hourly rates apply too . One way trips :" Trips less than 25 miles one way : minimum $39 per hour charge , minimum one hour , then billed by the minute after the first hour at the rate of $0. 65 per minute ( $39 divided by 60 ) . 40% of revenue Trips between 25 and 35 miles one way : minimum $58.50 per hour charge , minimum one hour , then billed by the minute after the first* hour at the rate of $0. 97 per minute ( $58.50 divided by 60 ) . 20% of revenue* Trips between 35 and 45 miles one way : minimum $78 per hour* charge , minimum one hour , then billed by the minute after the first* hour at the rate of $1 . 30 per minute ( $78 divided by 60 ) . 10% of revenue* Problem Statement The current pricing and driver pay methodology , having one hourly rate for driving* and a different hourly rate for waiting , with numerous restrictions , is complicated .* It is hard to explain to existing clients , prospects , drivers and our own staff . It leads to confusion , mistakes and wasted time dealing with client / driver issues / complaints* Billing clients and paying drivers is a manual process , prone to human error , takes 3 - 5 minutes per trip , or approx . 30 hours per week to manage . Technology isn't available to automate the process .New pricing policy :" A $39 per hour flat rate for client billing for all geographies , minimum one hour , then billed by the minute after the first hour at the rate of $0. 65 per minute ( $39 divided by 60 ) . The new policy is expected to increase the revenue by 10% for all types of trips and to cut the employee cost by $3, 000 . Question ( 1 ) : what will be the impact of the new pricing policy on the firm's net income ? Please feel free to make any necessary assumptions . Question ( 2 ) : How to price short trips while being competitive and profitable . Specifically , how much to charge or pay for short trips where the one hour minimum for billing / pay is putting the company at a competitive disadvantage ? This is an open-ended question and any answers are* welcome
