Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has...
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Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 85% on-time delivery rate. Thirteen percent of the items are misplaced and the remaining 2% are lost in shipping. On average, the firm incurs an additional $67 per item to track down and deliver misplaced items. Lost items cost the firm about $310 per item. Last year, the firm shipped 6,180 items with an average freight bill of $206 per item shipped. The firm's manager is considering investing in a new scheduling and tracking system costing $133,000 per year. The new system is expected to reduce misplaced items to 1% and lost items to 0.50%. Furthermore, the firm expects total sales to increase by 10% 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 37.5%. Required: 1a. Based on a relevant cost analysis, should the firm install the new tracking system? Yes O: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.) 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 Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 85% on-time delivery rate. Thirteen percent of the items are misplaced and the remaining 2% are lost in shipping. On average, the firm incurs an additional $67 per item to track down and deliver misplaced items. Lost items cost the firm about $310 per item. Last year, the firm shipped 6,180 items with an average freight bill of $206 per item shipped. The firm's manager is considering investing in a new scheduling and tracking system costing $133,000 per year. The new system is expected to reduce misplaced items to 1% and lost items to 0.50%. Furthermore, the firm expects total sales to increase by 10% 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 37.5%. Required: 1a. Based on a relevant cost analysis, should the firm install the new tracking system? Yes O: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.) 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
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Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
Posted Date:
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