Reference no: EM132562960

Question - Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The ?rm has an 89% on-time delivery rate. Seventeen percent of the items are misplaced and the remaining 1% are lost in shipping. On average, the ?rm incurs an additional $69 per item to track down and deliver misplaced items. Lost items cost the ?rm about $340 per item. Last year, the ?rm shipped 6,040 items with an average freight bill of $240 per item shipped.

The ?rm's manager is considering investing in a new scheduling and tracking system costing $155,000 per year. The new system is expected to reduce misplaced items to 5% and lost items to 0.25%. Furthermore, the ?rm expects total sales to increase by 14% 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 41.5%. 3.

Upon further investigation, the manager discovered that 84% of the misplaced or lost items either originated in or were delivered to the same country. What is the maximum amount the firm should spend to reduce the cost of problems in that country by 94%?