17-50 Cost of Quality ImprovementRelevant Cost Analysis PIM Industries, Inc., manufactures electronics components. Each unit costs $30 before the nal test. The nal test rejects, on average, 5% of the 50,000 units manufactured per year. The average rejection rate of the industry is 3 %. A consultant has determined that poor lighting is the most likely cause of this high rejection rate. It would cost $100,000 for new adequate lighting in the assembly department, which would be useful for 5 years. With adequate lighting that will cost an additional $5,000 in operating cost each year, the rm expects to reduce its rejection rate to no higher than the industry average.

Required

1). Should the rm install the lighting? (show calculations)

2). What other considerations might affect this decision?

3). What is the primary role of the management accountant in this decision context?

17-52 Relevant cost analysis: Decision making Pack and Go, a new competitor to FedEx and UPS, does intra- city package deliveries in seven major metropolitan areas. The performance of Pack and Go is measured by management as: (1) delivery time (relative to budgeted delivery time). (2) On time delivery rates (defined as agreed upon delivery date/time plus or minus specified cushion), (3) Percentage of lost or damaged deliveries. In response to competitive pressure, pack-and-Go is evaluating an investment in new technology that would improve customer service and delivery quality particularly in terms of items #2 and #3 above. The annual cost of the new technology for the seven metropolitan areas serviced by Pack-and-Go is expected to be $80,000. You have gathered the following info regarding delivery performance under both the existing operations and after implementing the new technology:

17-50 Cost of Quality ImprovementRelevant Cost Analysis PIM Industries, Inc., manufactures electronics components. Each unit costs $30 before the nal test. The nal test rejects, on average, 5% of the 50,000 units manufactured per year. The average rejection rate of the industry is 3 %. A consultant has determined that poor lighting is the most likely cause of this high rejection rate. It would cost $100,000 for new adequate lighting in the assembly department, which would be useful for 5 years. With adequate lighting that will cost an additional $5,000 in operating cost each year, the rm expects to reduce its rejection rate to no higher than the industry average. Required 1). Should the rm install the lighting? (show calculations) 2). What other considerations might affect this decision? 3). What is the primary role of the management accountant in this decision context? 17-52 Relevant cost analysis: Decision making Pack and Go, a new competitor to FedEx and UPS, does intra- city package deliveries in seven major metropolitan areas. The performance of Pack and Go is measured by management as: (1) delivery time (relative to budgeted delivery time). (2) On time delivery rates (dened as agreed upon delivery date/time plus or minus specied cushion), (3) Percentage of lost or damaged deliveries. In response to competitive pressure, pack-and-Go is evaluating an investment in new technology that would improve customer service and delivery quality particularly in terms of items #2 and #3 above. The annual cost of the new technology for the seven metropolitan areas serviced by Pack-and-Go is expected to be $80,000. You have gathered the following info regarding delivery performance under both the existing operations and after implementing the new technology: Decision Alternative Current System On Time Delivery rate Variable cost per lost or damaged After Implementing New Technology 80%. $30 95% $30 Allocated xed costs per package lost or damaged $10 . $10 Annual # of packages lost or damaged 100 300 Based on a recent study commissioned by Pack-and-Go the company estimates that each percentage point increase in the on-time performance rate would lead to an annual revenue increase of $10,000. The average contribution margin ratio for packages delivered by Pack-and-Go is estimated at 40%. 1.Form a nancial perspective, should pack- and- Go invest in the new technology? 2. Based on the data collected by Pack-and-Go, the company is fairly condent about the reduction in costs associated with lost or damaged packages. However, because of uncertainties in terms of pricing in the markets in which pack-and-go operates, it is less sure about the predicted increase in revenues associated with the implementation of the new technology. What is the breakeven increase in annual revenue that would justify the investment in the new technology