Quality improvement, relevant costs and revenues, service.
Colombe-Déménagements SA is a removals company that transports household goods from one Belgian city to another. It measures service quality in terms of (a) time required to transport goods, (b) on-time delivery (within two days of agreed-upon delivery date) and (c) lost or damaged shipments. Colombe-Déménagements is considering investing in a new scheduling and tracking system costing €160 000 per year that should help it improve performance with respect to items (b) and (c). The following information describes Colombe-Déménagements' current performance and the expected performance if the new system is implemented:
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Currentperformance
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Future expected performance
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On-time delivery performance
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85%
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95%
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Variable costs per carton lost or damaged
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€60
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€60
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Number of cartons lost or damaged per year
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3000 cartons
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1000 cartons
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Colombe-Déménagements expects that each percentage point increase in on-time perform- ance will result in sales increases of €20 000 per year. Colombe-Déménagements' contribution margin percentage is 45%.
Required
1. What are the annual additional costs to Colombe-Déménagements of choosing the new scheduling and tracking system?
2. What are the annual additional benefits of the new system?
3. Should Colombe-Déménagements acquire the new system?