Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Pack-and-G0, a new competitor to FedEx and UPS, does intra-city package deliveries in seven majo metropolitan areas. The performance of Pack-and-Go is measured by management
Pack-and-G0, a new competitor to FedEx and UPS, does intra-city package deliveries in seven majo 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 a specified cushion), and (3) percentage of lost or damaged deliveries. In response to competitive pressures, 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 cost of the new technology, for each of the seven metropolitan areas serviced by Pack-and-Go, is expected to be $80,000 You have gathered the following information regarding delivery performance under both existing operations and after implementing the new technology Decision Alternative After Implementing New Technology Item On-time delivery rate Variable cost per package lost or damaged Allocated fixed cost per package lost or damaged Annual no. of packages lost or damaged Current System 80% 95% S30 $10 S30 $10 Based on a recent marketing 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 as 40% Required: 1. From a financial perspective, calculate the net financial benefit per year Net financial benefit per vear 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, 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
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started