A manufacturing company doesn\'t charge its customers for shipping. It\'s produc

Question

A manufacturing company doesn't charge its customers for shipping. It's products are small and lightweight, so there isn't much difference between the cost to ship small orders and large orders. Shipment costs average $84 per. The company has a challenge to reduce its costs. One idea they are considering is charging customers for small orders. They did a survey asking customers what they would do if the company imposed a $90 fee on orders <$500. Of the 172 customers surveyed, 51 indicated they would pay the fee. The others said they would consolidate their orders. Last quarter, the company processed 65,104 shipments.

Using last quarter's shipping volume and the survey, what revenue would the company expect from imposing the fee?

Explanation / Answer

As it is mentioned that 51 out of 172 people will pay the fee so 51/172 i.e.30% would pay.

So 30% of total shipments would pay the fee i.e. 30% of 65104 i.e. 19531

Cost of each shipment is $90 so the total revenue from shipment fee would be:

19531 * 90 = $ 1757808

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