Download Practice Problem 9.1 Snow Removal

PRACTICE PROBLEM 9.1 SNOW REMOVAL
You live and work in a small town named Microchip, North Dakota. Microchip’s climate is extremely cold
and snowy. The local town currently has very limited snow removal equipment and as a result the
company has lost money on several occasions when the assembly lines had to be shut down due to lack of
workers.
As the human resources manager you have been asked to create a cost/benefit analysis for upper
management to determine if your company should invest in and operate its own fleet of snow removal
equipment to clear a ten-mile radius.

Losses: This worksheet outlines the expected number of occurrences of each type of snow emergency
and the associated results: shutdown from 8am-10am, shutdown from 10am-noon, shutdown from
noon until 3pm, availability of technical support. It will be used to classify each storm type into one or
more Loss Categories. If a storm type meets the criteria for a category it will incur the costs associated
with that loss. A storm can fit into one or more loss categories. So for example, total losses for a storm
that meets both Loss Category 1 & 2 criteria, would be the sum of the losses for categories 1 & 2.

Distance: This worksheet contains the miles of each type of road that will be plowed and/or salted.
You will be converting miles into linear feet.

Units: This worksheet contains unit conversions and the annual interest rate you will need for this
problem

OpCosts: This worksheet contains the type of equipment and number of passes that will be required
for each type of road (Side Street, thoroughfare or highway). This information is per snowfall. This
sheet also contains the operating rate (LF/min) for each piece of equipment and the cost per hour to
operate it. For example, each time it snows the highway (22miles) will require 2 passes of the large
plow and two passes with the salter. The large plow operates at 700 linear feet per minute (LF/min)
and the operating costs are $40 per hour. The salter operates at 550 linear feet per minute and costs
$50 per hour to operate.

CapCosts: This worksheet is a detailed analysis of the capital investment that will be required and the
allocation of costs over a ten-year period. The analysis assumes it will take a maximum of 6 hours to clear
the streets. The company will need to purchase enough equipment to complete the plowing and salting
operation within the 6 hour period. This time frame is given in cell Capcosts!C1 and has been named
hours.

Summary: This worksheet will be used to summarize your information and to make a recommendation.
You will be analyzing both the potential loss of revenue and the costs (operating and capital) of
operating the snow removal fleet. From this information you will make a recommendation to the
company as to whether it would be more profitable to shut down or to remove the snow. The
operating costs, annual equipment payment, and expected losses will be referenced from the
appropriate worksheets. (Operating Costs will be referenced from cell OpCosts!K10, Equipment
payments will be referenced from cell CapCosts!B6, and the expected losses will be referenced from
cell Losses!J8.)
Distance
CapCosts
Summary
Losses
OpCosts
Units
1. Write a formula in cell Losses!G4, which can be copied down, to determine (T/F) if this type of snow
results in a shutdown of at least two hours (Loss Category 1).
2. Write a formula in cell Losses!H4, which can be copied down, to determine (T/F) if this type of snow
results in a full day shutdown (8am-3pm-Loss Category 2). Write this formula so that it can be copied
down.
3. Write a formula cell Losses!I4, which can be copied down, to determine if (True/False) this type of
snow results in only Tech support being unavailable and no production downtime (Loss Category 3).
4. Write a formula in cell Losses!J4, which can be copied down, to determine the expected loss per storm
for the associated type of snowstorm. The financial losses that will occur for each loss category (per
storm) is given in row 2 of the losses spreadsheet.
5. Write a formula in cell Losses!J8 to calculate the expected losses per year for all storms. The number of
expected storms of each snow type is listed in column B.
6. To calculate operating costs, we will convert distances to linear feet (LF). Write a formula in cell
Distance!B3, which can be copied across, to determine the number of linear feet (LF) of this type of
road.
7. Write a formula in cell OpCosts!F7, which can be copied across and down, to calculate the number of
hours per storm needed for the corresponding equipment type and road type.
8. Write a formula in cell OpCosts!I7, which can be copied down, to calculate the total the number of
hours that will be required of this type of equipment for all road types per storm.
9. Write a formula in cell OpCosts!J7, which can be copied down, to automatically calculate the total
operating cost per storm for the corresponding equipment type.
10. As we’ve previously discussed, in some cases an IF function can be used instead of a reference
function. To illustrate this, write a formula in cell OpCosts!K7, using an IF function, to calculate total
operating cost per storm for the corresponding equipment type. Write the formula so that it can be
copied down the column.
11. Write a formula in OpCosts!J10 to calculate the total expected operating costs per winter. Assume the
same number of storms that were used to determine losses from sheet Losses. The type of storm does
not affect the type of equipment and time required to clear the snow.
12. You have already determined how many total hours each equipment type will be needed. Now write a
formula in cell CapCosts!C4, which can be copied down, to determine the minimum number of
equipment that will be required in order that all plowing is completed within the allowed completion
time (cell C1 is named hours). Round your answer up to a whole number.
13. Write a formula in CapCosts!D4, which can be copied down, to determine the capital equipment costs
for each equipment type.
14. Write a formula in CapCosts!B9 to calculate the annual amount needed to repay a loan for all of the
capital equipment (small plows, large plows and salters). The loan will finance 100% of the equipment
costs and be paid out in equal monthly installments over the next ten years. The current annual
interest rate has been entered on the Units spreadsheet. The loan is compounded monthly.