Silver Lining Inc. has a balanced scorecard with a strategy map that shows that delivery time and the number of erroneous shipments are expected to affect the company’s ability to satisfy the customer. Further, the strategy map for the balanced scorecard shows that the hours from ordered to delivered affects the percentage of customers who shop again, and the number of erroneous shipments affects the online customer satisfaction rating. The following information is also available:
- The company’s target hours from ordered to delivered is 40.
- Every hour over the ordered-to-delivered target results in a 0.5% decrease in the percentage of customers who shop again.
- The company’s target number of erroneous shipments per year is no more than 65.
- Every error over the erroneous shipments target results in a 0.5 point decrease in the online customer satisfaction rating and an added future financial loss of $500.
- The company estimates that for every 1% decrease in the percentage of customers who shop again, future profit decreases by $4,000 and market share decreases by 0.3%.
- The company also estimates that for every 1 point decrease in the overall online customer satisfaction rating (on a scale of 1 to 10), future profit decreases by $3,000 and market share decreases by 0.6%.
Using these estimates, determine how much future profit and future market share will change if:
- Average hours from ordered to shipped is 27.5.
- Average shipping time (hours from shipped to delivered) is 16.3.
- Number of erroneous shipments is 80.
Compute the changes in future profit and future market share for Company SL.
Explanation of Solution
Compute the changes in future profit for Company SL:
The changes in the future profit for Company SL is $17,350.
Compute the changes in future market share for Company SL:
The changes in the future profit for Company SL is $17,350.
Working Note (1):
Compute the average hours from ordered to delivery:
The hours above the target average delivery time is 3.8 hours
Working Note (2):
Compute the decrease in percentage of customers who would shop again:
The decrease in percentage of customers who would shop again is 1.9%.
Working Note (3):
Compute the effect of erroneous shipment above target:
Working Note (4):
Compute the decrease in overall online customer satisfaction rating:
The decrease in overall online customer satisfaction rating is 0.75
Working Note (5):
Compute the added future financial loss:
The added future financial loss is $7,500
Working Note (6):
Compute the effect of decrease in percentage of customers who would shop again on future profit:
There will be a decrease of the future profit by $7,600.
Working Note (7):
Compute the effect of decrease in percentage of customers who would shop again on future market share:
There will be a decrease of the future market share by 5.7%.
Working Note (8):
Compute the effect of decrease in overall online customer satisfaction rating on future profit:
There will be a decrease of the future profit by $2,250.
Working Note (9):
Compute the effect of decrease in overall online customer satisfaction rating on future market share:
There will be a decrease of the future market share by 0.45%.
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Chapter 14 Solutions
MANAGERIAL ACCOUNTING (LL) W/ CENGAGENO
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