Solution-Calculate the minimum amount of increase in

Calculate the minimum amount of increase in revenues

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Question - Sloan Moving Ltd transports household goods from one city to another within Australia. It measures quality of service in terms of: (a) time required to transport goods; (b) on-time delivery (within two days of agreed-upon delivery date); and (c) number of lost or damaged shipments. Sloan Moving is considering investing in a new scheduling-and -tracking system costing $178,000 per year, which should help it to improve performance with respect to items (b) and (c). The following information describes Sloan Moving's current performance and the expected performance if the new system is implemented:

	Current performance	Expected future performance
On-time delivery performance	80%	92%
Variable cost per carton lost or damaged	$60	$60
Fixed cost per carton lost or damaged	$40	$40
Number of cartons lost or damaged per year	4,000 cartons	2,000 cartons

Sloan moving expects each percentage point increase in on-time performance to increase revenue by $25,000 per year. Sloan Moving's contribution margin percentage is 45%.

Sloan Moving is confident about the cost savings from fewer lost or damaged cartons as a result of introducing the new system. Calculate the minimum amount of increase in revenues needed for Sloan Moving to invest in the new system.

Reference no: EM133125898

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Calculate the minimum amount of increase in revenues

Reference no: EM133125898

Reference no: EM133125898

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