Question
Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 77% on-time delivery rate. Thirty-one percent of the
Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 77% on-time delivery rate. Thirty-one percent of the items are misplaced and the remaining 2% are lost in shipping. On average, the firm incurs an additional $57 per item to track down and deliver misplaced items. Lost items cost the firm about $220 per item. Last year, the firm shipped 5,920 items with an average freight bill of $120 per item shipped.
The firms manager is considering investing in a new scheduling and tracking system costing $120,000 per year. The new system is expected to reduce misplaced items to 19% and lost items to 0.50%. Furthermore, the firm expects total sales to increase by 28% 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 29.5%.
15. 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 itemsexisting sales Savings from decrease in lost itemsexisting sales Change in pre-tax cash flow per year under the new system $ 0Step by Step Solution
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