Sloan Moving Ltd transports household goods from one city to another within the UK. It measures quality of service in terms of (1) time required to transport goods, (2) on-time delivery (within 2 days of agreed-upon delivery date), and (3) number of lost or damaged items. Sloan is considering investing in a new scheduling-and tracking system costing £160,000 per year, which should help it to improve performance for items (2) and (3). The following information describes Sloan’s current performance and the expected performance if the new system is implemented: 

Sloan expects each percentage point increase in on-time performance to increase revenue by £20,000 per year. Sloan’s contribution margin percentage is 45%. 

Required 

1. Should Sloan acquire the new system? Show your calculations. 

2. Sloan is very confident about the cost savings from fewer lost or damaged cartons as a result of introducing the new system but unsure about the increase in revenues. Calculate the minimum amount of increase in revenues needed to make it worthwhile for Sloan to invest in the new system.

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Current Expected On-time delivery performance Variable cost per carton lost or damaged Number of cartons lost or 85% £60 95% £60 damaged per year 3000 1000