Reference no: EM132660733

The City of Imperial Falls contracts with Evergreen Waste Collection to provide solid waste collection to households and businesses. Until recently, Evergreen had an exclusive franchise to provide this service in Imperial Falls, which meant that other waste collection firms could not operate legally in the city. The price per pound of waste collected was regulated at 20 percent above the average total cost of collection.

Cost data for the most recent year of operations for Evergreen are as follows:

Administrative cost $412,000

Operating costs-trucks $1,340,000

Other collection costs $332,000

Data on customers for the most recent year are as follows:

Number of customers
Households 13,200
Businesses 5,400

Waste collected (tons)
Households 5,200
Businesses 14,400

The City Council of Imperial Falls is considering allowing other private waste haulers to collect waste from businesses, but not from households. Service to businesses from other waste collection firms would not be subject to price regulation. Based on information from neighboring cities, the price that other private waste collection firms will charge is estimated to be $0.04 per pound (= $80 per ton). (1 ton = 2,000 pounds)

Evergreen's CEO has approached the city council with a proposal to change the way costs are allocated to households and businesses, which will result in different rates for households and businesses. She proposes that administrative costs and truck operating costs be allocated based on the number of customers and the other collection costs be allocated based on pounds collected. The total costs allocated to households would then be divided by the estimated number of pounds collected from households to determine the cost of collection. The rate would then be 20 percent above the cost. The rate for businesses would be determined using the same calculation.

Required:

Problem a. Based on cost and waste data from the most recent year, what would be the price per pound charged to households and to businesses by Evergreen for waste collection if the CEO's proposal were accepted?

Allocated cost per customer
Households $94
Businesses $94

Total allocated cost
Households _____________
Businesses $752,400

Average allocated cost per pound
Households _____________
Businesses $0.0261

Price

Households ______________
Businesses $0.0313