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Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 85% on-time delivery rate. Thirteen percent of the items are misplaced and the remaining 2% are lost in shipping. On average, the firm incurs an additional $66 per item to track down and deliver misplaced items. Lost items cost the firm about $365 per item. Last year, the firm shipped 7,170 items with an average freight bill of $239 per item shipped.

The firms manager is considering investing in a new scheduling and tracking system costing $167,000 per year. The new system is expected to reduce misplaced items to 1% and lost items to 0.50%. Furthermore, the firm expects total sales to increase by 10% 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 37.5%.

Required:

1a. Based on a relevant cost analysis, should the firm install the new tracking system?

multiple choice

• Yes

• No

1b. 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.)