Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 92% on-time delivery rate. Twenty percent of the items are misplaced and the remaining 1% are lost in shipping. On average, the firm incurs an additional $72 per item to track down and deliver misplaced items. Lost items cost the firm about $370 per item. Last year, the firm shipped 6,070 items with an average freight bill of $270 per item shipped. The firm’s manager is considering investing in a new scheduling and tracking system costing $202,000 per year. The new system is expected to reduce misplaced items to 8% and lost items to 0.25%. Furthermore, the firm expects total sales to increase by 17% with the improved service. The average contribution margin ratio on any increased sales volume, after cost savings associated with a reduction in misplaced and lost items, is expected to be 44.5%. Required: 1a. Based on a relevant cost analysis, should the firm install the new tracking system? multiple choice Yes No 1b. What is the estimated change in pretax cash flow under the proposed system?
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Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 92% on-time delivery rate. Twenty percent of the items are misplaced and the remaining 1% are lost in shipping. On average, the firm incurs an additional $72 per item to track down and deliver misplaced items. Lost items cost the firm about $370 per item. Last year, the firm shipped 6,070 items with an average freight bill of $270 per item shipped.
The firm’s manager is considering investing in a new scheduling and tracking system costing $202,000 per year. The new system is expected to reduce misplaced items to 8% and lost items to 0.25%. Furthermore, the firm expects total sales to increase by 17% with the improved service. The average contribution margin ratio on any increased sales volume, after cost savings associated with a reduction in misplaced and lost items, is expected to be 44.5%.
Required:
1a. Based on a relevant cost analysis, should the firm install the new tracking system?
multiple choice
-
Yes
-
No
1b. What is the estimated change in pretax cash flow under the proposed system? (Negative amounts should be indicated by a minus sign. Round your answers to the nearest whole dollar amount.)
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