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Pack-and-Go, a new competitor to FedEx and UPS, does intra-city package deliveries in seven major metropolitan areas. T
performance of Pack-and-Go is measured by management as (1) delivery time (relative to budgeted delivery time), (2) on-ti
delivery rates (defined as agreed-upon delivery date/time plus or minus a specified cushion), and (3) percentage of lost or
damaged deliveries. In response to competitive pressures, Pack-and-Go is evaluating an investment in new technology tha
improve customer service and delivery quality, particularly in terms of items 2 and 3 above. The annual cost of the new tec
for each of the seven metropolitan areas serviced by Pack-and-Go, is expected to be $80,000. You have gathered the folle
information regarding delivery performance under both existing operations and after implementing the new technology:
Item
On-time delivery rate
Variable cost per package lost or damaged
Allocated fixed cost per package lost or damaged
Annual no. of packages lost or damaged
Decision Alternative
After
Current Implementing
System New Technology
80%
95%
$ 30
$ 30
$ 10
$ 10
300
100
Based on a recent marketing study commissioned by Pack-and-Go, the company estimates that each percentage point in
the on-time performance rate would lead to an annual revenue increase of $10,000. The average contribution margin ratic
packages delivered by Pack-and-Go is estimated as 40%.