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 an incinerator, 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 $1.25 per can of garbage, covering both collection ($1.00) and disposal ($0.25). Unfortunately, recent increases in the cost of fuel and chemicals have led to deficits in the "Solid Waste Fund" that 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 cans per week. You can assume that there will be 100,000 cans 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: are fulltime, and work 5 days per week, 8 hours per day. They get a 3 week paid vacation, and make $30,000 per year (which includes fringe benefits).
4) Each worker can collect 200 cans per day.
5) Collection Division uses total 50 trucks per year. 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 incinerator is operated 8 hours per day, 5 days per week, 52 weeks per year.
7) Facility costs including debt service, and insurance cost $1,000,000 per year. The facility is considered to be large enough to handle any volume of garbage in the near future.
8) Supplies to operate the facility cost $416,000 last year to service 80,000 cans of garbage per week (52 weeks per year). You can assume for simplicity no inflation this year.
9) Landfill operators work fulltime, 8 hours per day, 5 days per week with 3 weeks of vacation. They make $40,000 per year (which includes fringe benefits).
10) One operator can dispose 160 cans per hour.
Based on this information, answer the following questions.
1) Calculate the personnel budgets for the Solid Waste Collection Division and Solid Waste Disposal Division ( number of employees for each division, numbers of cans per each division etc)
2) Calculate unit costs for each division, and calculate the level of the surplus or deficit. Use the number of employees as an indirect cost allocation method.
(i.e. determine which costs you can link directly a mission center and which are indirect costs, then determine how each cost category varies with output by identifying fixed, variable, step and semi-variable costs, Using this information calculate cost rates and develop a unit cost table with each mission center. How large is the deficit compared to the state reimbursement rate?)
3) Assume that a neighboring county wants to dispose of 50,000 cans per week (for 52 weeks per year) of garbage in the incinerator, and is willing to pay the county $750,000 for the year. Should the county accept this offer? Explain, and show your calculations. (Hint: You can treat this as an increased demand in disposal service with an extra revenue)