Customer-response time, on-time delivery. Pizzafest Inc. makes and delivers pizzas to homes and offices in the Vancouver area. Fast, on-time delivery is one of Pizzafest’s key strategies. Pizzafest provides the following information for the year 2007 about its customer-response time—the amount of time between when a customer calls to place an order and when the pizza is delivered to the customer.
1. Pizzas delivered in 30 minutes or less 2. Pizzas delivered in between 31 and 45 minutes 3. Pizzas delivered in between 46 and 60 minutes 4. Pizzas delivered in between 61 and 75 minutes Total pizzas delivered January-June July-December 120,000 180,000 240,000 312,000 96,000 84,000 24,000 24,000 480,000 600,000 Required 1. For January—June 2007 and July-December 2007, calculate the percentage of pizzas delivered in each of the four time intervals (less than 30 minutes, 31 to 45 minutes, 46 to 60 minutes, and 61 to 75 minutes). On the basis of these calculations, has customerresponse time improved in July-December 2007 compared with January-June 2007?
2. When customers call Pizzafest, they often ask how long it will take for the pizza to be delivered to their home or office. If Pizzafest quotes a long time interval, customers will often not place the order. If Pizzafest quotes too short a time interval and the pizza is not delivered on time, customers get upset and Pizzafest will lose repeat business.
Based on the January-June 2007 data, what maximum customer-response time should Pizzafest quote to its customers if

(a) it wants to have an on-time delivery performance of at least 75% ?

(b) it wants to have an on-time delivery performance of at least 95 %?
3. If Pizzafest had quoted the maximum customer-response times you calculated in require¬
ments 2

(a) and 2(b), would it have met its on-time delivery performance targets of 75%
and 95% respectively for the period July-December 2007?
4. Pizzafest is considering giving an on-time guarantee for January-June 2008. If the pizza is not delivered within 60 minutes of placing the order, the customer gets the pizza free. Pizzafest estimates that it will make additional sales of 20,000 pizzas as a result of giving this guarantee. It estimates that it will fail to deliver a total of 15,000 pizzas on time. The average price of a pizza is $15.60, and the variable cost of a pizza is $8.40.

a. What is the effect on Pizzafest’s operating income ofmaking this offer?

b. What other factors should Pizzafest consider before making this offer?

c. What actions can Pizzafest take to reduce customer-response time?