Assume an organizations current service level on order ll is as follows: Current order ll = 80%

Assume an organization’s current service level on order ἀll is as follows:

Current order ἀll = 80%

Number of orders per year = 5,000 Percentage of unἀlled orders back-ordered = 70%

Percentage of unἀlled orders cancelled = 30%

Back order costs per order = $150 Lost pretax proἀt per cancelled order = $12,500

a. What is the lost cash flow to the seller at this 80 percent service level?

b. What would be the resulting increase in cash flow if the seller improved order ἀll to 92 percent?

c. If the seller invested $2 million to produce this increased service level, would the investment be justiἀed ἀnancially?