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# Problem 17-72: Relevant Costs and Quality Improvement Background Lightening Bulk Company is a moving company specializing in transporting large items...

Can you assit with this worksheet. The Requirements are at row 34.
Problem 17-72: Relevant Costs and Quality Improvement Background Problem Information On-time delivery rate 85% Items misplaced 12% Lost in shipping 3% Additional cost per item to track down and deliver misplaced items \$60 Lost items cost per item \$300 Last year's volume (# items shipped) 5,000 Average freight bill per item shipped \$200 New scheduling and tracking system cost per year \$150,000 Reduction of misplaced items 1% Reduction of lost items 0.5% Expected total sales increase 10% Average contribution margin rate 40% Requirements 1. Based on a relevant-cost analysis, should the firm install the new tracking system? Show calculations. 2. What other factors does the firm’s manager need to consider in making the decision? 3. Upon further investigation, the manager discovered that 80 percent of the misplaced or lost items either originated in or were delivered to the same country. What is the maximum amount the company should spend to reduce the problems in that country by 90 percent? Solution Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The company has an 85 percent on-time delivery rate. Twelve percent of the items are misplaced and the remaining 3 percent are lost in shipping. On average, the company incurs an additional \$60 per item to track down and deliver misplaced items. Lost items cost the company about \$300 per item. Last year the Lightening Bulk shipped 5,000 items with an average freight bill of \$200 per item shipped. The company’s manager is considering investing in a new scheduling and tracking system costing \$150,000 per year. The new system is expected to reduce misplaced items to 1 percent and lost items to 0.5 percent. Furthermore, the new system is expected to increase total sales by 10 percent. The average contribution margin on any incremental sales volume is expected to be 40 percent.

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