Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 80% on-time delivery rate. Twenty-eight percent of the items are misplaced and the remaining 2% are lost in shipping On average, the firm Incurs an additional $60 per item to track down and deliver misplaced items. Lost items cost the firm about $250 per item. Last year, the firm shipped 5,950 items with an average freight bill of $150 per item shipped. The firm's manager is considering investing in a new scheduling and tracking system costing $145,000 per year. The new system is expected to reduce misplaced items to 16% and lost items to 0.50%. Furthermore, the firm expects total sales to Increase by 25% 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 32.5%. Required: 10. Based on a relevant cost analysis, should the firm install the new tracking system? Yes No 1b. What is the estimated change in pretax cash flow under the proposed system? (Negative amounts should be indicated by a mim sign. Round your answers to the nearest whole dollar amount.) Answer is complete but not entirely correct. Cost of the new system (per year) Expected benefits each year from the new system Contribution margin from sales increase Cost savings from decrease in misplaced items-existing sales Savings from decrease in lost tems-existing sales Change in pre-tax cash flow per year under the new system $ 72,516 $ 42,840 S 22,313 $ 145,000 S 137,609 7,331
Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 80% on-time delivery rate. Twenty-eight percent of the items are misplaced and the remaining 2% are lost in shipping On average, the firm Incurs an additional $60 per item to track down and deliver misplaced items. Lost items cost the firm about $250 per item. Last year, the firm shipped 5,950 items with an average freight bill of $150 per item shipped. The firm's manager is considering investing in a new scheduling and tracking system costing $145,000 per year. The new system is expected to reduce misplaced items to 16% and lost items to 0.50%. Furthermore, the firm expects total sales to Increase by 25% 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 32.5%. Required: 10. Based on a relevant cost analysis, should the firm install the new tracking system? Yes No 1b. What is the estimated change in pretax cash flow under the proposed system? (Negative amounts should be indicated by a mim sign. Round your answers to the nearest whole dollar amount.) Answer is complete but not entirely correct. Cost of the new system (per year) Expected benefits each year from the new system Contribution margin from sales increase Cost savings from decrease in misplaced items-existing sales Savings from decrease in lost tems-existing sales Change in pre-tax cash flow per year under the new system $ 72,516 $ 42,840 S 22,313 $ 145,000 S 137,609 7,331
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Vishno
Transcribed Image Text:Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 80%
on-time delivery rate. Twenty-eight percent of the items are misplaced and the remaining 2% are lost in shipping On
average, the firm Incurs an additional $60 per item to track down and deliver misplaced items. Lost items cost the firm
about $250 per item. Last year, the firm shipped 5,950 items with an average freight bill of $150 per item shipped.
The firm's manager is considering investing in a new scheduling and tracking system costing $145,000 per year. The new
system is expected to reduce misplaced items to 16% and lost items to 0.50%. Furthermore, the firm expects total sales to
Increase by 25% 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 32.5%.
Required:
1a. Based on a relevant cost analysis, should the firm install the new tracking system?
Yes
No.
1b. What is the estimated change in pretax cash flow under the proposed system? (Negative amounts should be indicated by a min
sign. Round your answers to the nearest whole dollar amount.)
Answer is complete but not entirely correct.
Cost of the new system (per year)
Expected benefits each year from the new system:
Contribution margin from sales increase
Cost savings from decrease in misplaced items-existing sales
Savings from decrease in lost items-existing sales
Change in pre-tax cash flow per year under the new system
$
S
$
72,516
42,840
22,313
$ 145,000
S
$
137.669
7,331
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