Please answer #12 Show all work and computations 12. Assume an organization\'s c
ID: 345338 • Letter: P
Question
Please answer #12 Show all work and computations 12. Assume an organization's current service level on order fill is as follows: Current order fill = 80% Number of orders per year = 5,000 Percentage of unfilled orders back-ordered = 70% Percentage of unfilled orders canceled = 30% Back order costs per order = $150 Lost pretax profit per cancelled order = $12,500 a. What is the lost cash flow to the seller at this 80 percent service level b. What would be the resulting increase in cash flow if the seller improved order fill to 92 percent? c. If the seller invested $2 million to produce this increased service level, sould the investment be justified financially?Explanation / Answer
12 a. The formula for calculating Lost Cash Flow is:
(No. of Unfilled orders back-ordered * Back order costs per order)
+ (No. of Unfilled orders cancelled * Lost pretax profit per cancelled order)
+ (No. of Unfilled back ordered * Invoice deduction per order)
As per the problem given,
Total no of orders/year=5000
No of orders filled completely=80% of 5000=4000
No of unfilled orders=20% of 5000=1000
No. of Unfilled orders back-ordered=70% of 1000=700
Back order costs per order= $150
No. of Unfilled orders cancelled=30% of 1000=300
Lost pretax profit per cancelled order=$12500
No. of Unfilled back ordered=70% of 1000=700
Invoice deduction per order=0
Therefore, Lost Cash flow= (700*150)+(300*12500)+(700*0)
= 105000+3750000+0=$3855000
b. If order fill is increased to 92%
Total no of orders/year=5000
No of orders filled completely=92% of 5000=4600
No of unfilled orders=8% of 5000=400
No. of Unfilled orders back-ordered=70% of 400=280
Back order costs per order= $150
No. of Unfilled orders cancelled=30% of 400=120
Lost pretax profit per cancelled order=$12500
No. of Unfilled back ordered=70% of 400=280
Invoice deduction per order=0
Therefore, Lost Cash flow= (280*150)+(120*12500)+(280*0)
= 42000+1500000+0=$1542000
Increase in cash flow= $2313000
c. If seller invested $2 million, then there will be a profit of (2313000-2000000)=$313000
So the investment is totally justified.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.