pack ang go pro is a new competitor of fedex and UPS that does intra- city package deliveiers in seven major cities. The performace of pack and go is measured by 1. Delivery time relative to budgeted delivery time. 2. On time delivery rates (defined as agreed upon delivery date/time plus or minus specific cusshion) 3. Percentage of of lost or damanged deliveries. In respose to competitve pressure, pack-and-Go is evaluating an invcestment in new technology that would imporve customer service and delivery quality particialury 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:

Current System After Vs. Implementing New Technology

On Time Delivery rate 80% Vs. 95%

Variable cost per lost or damaged $30 Vs. $30

Allocated fixed costs per package lost or damaged $10 Vs. $10

Annual # of packages lost or damaged 300 VS. 100

Based on a recent study commissioned by Pack-and-Go the company estimes 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%.

Required

1.Form a finanical perspective, should pack- and- Go invest in the new technology?

2. Based on the data collected by Pack-and-Go , the company is fairly confident about the reduction in costs associated with lost or damaged packages. However, becuase of uncertainities in terms of pricing in the markets in which pack-and-go opeates, it is less sure about the predicited 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 ?