Over-lands management is considering the proposal from FHP. There are many issues involving strategy, cost, risk, and capacity. Prepare a recommendation to management. Use the following questions to guide your analysis.

1. Assume Over-land could service the contract with existing equipment. Use Exhibit 1 to identify the relevant costs concerning the acceptance of FHPs request to add two additional loads per week. Which costs are not relevant? Why?

2. Calculate the contribution per mile and total annual contribution associated with accepting FHPs proposal. What do you recommend? (Use 52 weeks per year in your calculations.)

Exhibit 1 Income from Operations (All financial information in the case has been scaled and disguised for educational purposes.) Over-land Trucking and Freight Income from Operations For the year ending December 31, 2013 Per Mile $1.86 Revenue Line Haul Fuel Surcharge Miscellaneous Total Revenue FYE 12/31/2013 $20,925,280 4,950,160 450.120 $26,325,570 0.44 0.04 $2.34 Variable Expenses Insurance 0.06 0.78 675,120 8,775,190 112,700 112,550 0.01 0.01 Fuel Oil Lubricants Tolls Parts and Small Tools Hourly Wages: Drivers Trailer Pool Expense Total Variable 0.07 0.44 787,630 4,950,160 255,120 15,638,480 0.02 1.39 0.01 0.02 0.02 Fixed Expenses Insurance General Liability Physical Damage Workers Compensation Health Insurance Security Depreciation Salaries, Benefits (Garage) Salaries, Benefits (Office) Bad Debt Expense Permits 112,620 225,010 226,000 224,500 111,750 2,137,500 675,000 0.02 0.01 0.19 0.06 1,012,520 0.09 113,500 111,520 0.01 0.01 1,013,000 562,500 0.09 0.05 Rental Equipment Payroll Taxes Accounting Fees, Supplies, Computer Maintenance Miscellaneous Total Variable 0.01 112,350 337510 6,975,280 0.03 0.62 Income from Operations $3,681,810 $0.33 Note: Permile values are based on 11,250,000 miles and have boon rounded to two decimal places Exhibit 2 Over-land Balance Sheet Over-land Trucking and Freight Balance Sheet For the year ending December 31, 2013 Assets Current Assets Cash $200,000 300,000 Accounts Receivable Total $500,000 Property Plant and Equipment Land Buildings Accumulated Depreciation Buildings Tractors, Trailers, and Equipment Accumulated Depreciation Total 1,000,000 3,000,000 (1,250,000) 18,650,000 4,750,000 $16,650,000 Total Assets $17,150,000 Liabilities and Equity Current Liabilities Accounts Payable Taxes Payable Current Portion of Long-Term Debt Total Current Liabilities 150,000 65,000 35,000 $250,000 1,865,000 $1,865,000 $2,115,000 Long-Term Liabilities Notes Payable Total Long-Term Liabilities Total Liabilities Owner's Equity Contributed Capital Retained Earnings Total Owner's Equity 3,550,000 11.485.000 $15,035,000 Total Liabilities and Owner's Equity $17,150,000