You are the Business Manager for a small bulk transportation operation located in an oilfield basin. Your manager has informed you that ABC Refinery recently sent out a Request for Proposa l (RFP} to provide crude oil transportation services. The volumes are expected to be 5,000,000 barrels each year. The oil will be picked up a t a crude oil battery and delivered to a pipeline LACT. The product will be transported on a ratable basis during the twelve months of the year; hence, transportation services will need to be provided 24/7, 365 days per year.

Your manager has asked you to calculate the transportation rate necessary to achieve an 88% Operating Ratio (Total Expenses / Total Revenue). You have performed a zero-based analysis of the costs for providing these services and have summarized your findings as follows:

The truck yard and maintenance shop acquired will be sufficient for the equipment

oThe lease payment for the land is $3,000 per month

oThe shop annual depreciation of $36,000 per year

One-way miles: 30

Off-road miles: 20

Anticipated MPH: 30

Time to Load (no Grind-out necessary): 45 minutes

Time to Unload at LACT: 45 minutes

Time for Pre/Post Shift Check and Fueling: 30 minutes

Time for Mandatory DOT break per shift: 30 minutes

Cost of diesel: $3.25/gal

MPG: 4.0

Barrels of crude oil per Load: 185

Tire Expense: $0.12 per mile

Parts & Supplies Expense: $0.22 per mile

Outside Maintenance Expense: $0.08 per mile

Driver Pay:

oThe current market analysis shows the drivers annual wages need to be roughly $85,000 per year. The drivers need to be pa id on a "per load" basis; hence you need to calculate what the pay per load needs to be and reflect this pay structure in your pro forma .

oDrivers schedule will be 11 hours prr day on a 5 - 2 / 5 - 3 schedule

Bonus Pay: 4% of Labor

One mechanic for every eight tractor shifts :assume 55 hour work weeks)

oMechanic Pay: $28.00 per hour

Cost of tractor: $155,000

oDepreciation term in months

oDepreciation goal should be to depreciate tractors over 600,000 miles when they will be replaced with new

-Salvage value: 25% of purchase price

o Insurance cost: $373 per month per tractor

o License cost: $325 per month per tractor

Cost of trailer: $150,000

oDepreciate over 10 years

oSalvage Value: Zero

oLicense cost: $30 per month per trailer

Savage's CFO has indicated the interest rate will be 4.50% for all capital purchases

Overhead support as follows:

oOperation Manager: $100,000 (salary)

oMaintenance Manager: $90,000 (salary)

oCoordinator: $20 per hour (40 hour work week)

oFringe benefit costs will be 38% of wages and salaries (also applies to drivers and maintenance employees)

oTravel and other manager expenses will cost $500 a month except in June when the costs will be $3,000

oGeneral Liability Insurance costs will be 0.8% of revenue

oTelephone and other utilities will be $55,000 per year

oOffice and facility supplies, uniforms, and miscellaneous expenses will be $5,500 per month

oGeneral overhead costs will be 10% of revenue

oProperty Insurance and Taxes per year are $20,000

oPollution insurance is 0.4% of revenue

Prepare a pro forma for this opportunity as requested by your manager, and calculate the rate per barrel needed to generate an 88% operating ratio.