Costs of Breakage and Defective Customer Service. Bangkok Trucking Co. hauls goods throughout Thailand. The company guarantees arrival at the designated place within an agreed two-hour period. Penalty for late arrival is 10 percent off the shipping rate. The penalty for being a day late is 20 percent off shipping rates. Each additional day costs an additional 20 percent. The following portion of shipments will arrive late:

Breakage of shipped goods results in additional costs related to replacing the goods, reshipping them to their destination, and the disruption of the customer's business. The company follows the policy of paying replacement costs on all broken goods, refunding shipping charges on damaged shipments, and paying a 30 percent surcharge on the replacement cost for business interruption. Approximately one percent of goods shipped (in sales value) will be damaged in shipment.
During July 1997, Bangkok Trucking expects to make 642 shipments with total revenues (before breakage and defective service) amounting to \(6,420,000\) baht. The average shipment is expected to have an 8,000 baht replacement cost. The variable costs of shipping are 70 percent of the billed shipping rate. Fixed costs are 900,000 baht per month.
\section*{Required:}
1. Prepare an estimate of the penalties, or revenue lost, from late shipments during July 1997.
2. Prepare an estimate of the cost of shipments with breakage.
3. Assume the company can make systems changes and implement training programs that will reduce the late shipments to:

The percentage of goods shipped that would be damaged would be cut in half. How much could the company afford to pay for such changes and programs?

Transcribed Image Text:

More than 2 hours but less than 1 day late 1 day late 2 days late. 3% 2% 1%