Show all work Compute the cash flow lost for order fill rate of 70, 80, and 99 p
ID: 446371 • Letter: S
Question
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Compute the cash flow lost for order fill rate of 70, 80, and 99 percent. Use the following information. 100 units per order (average) 25,000 orders per year Pretax profit per unit is $I00 Pretax profit per order is $10,000 Invoice deduction per order is $250 Percentage of incomplete orders back-ordered is 70% Back order costs per order: administrative = $25.00; rehandling = $50.00; redelivery = $100.00 Percentage of incomplete orders cancelled is 30% Use this formula Cash Flow Lost = (Number of Incomplete Orders Back-Ordered times Back Order Cost per Order) + (Number of Incomplete Orders Cancelled times Lost Pretax Profit per Order) + (Number of Incomplete Back-Ordered times Invoice Deduction per Order)Explanation / Answer
Total Orders= 25000
Filled Orders
70% of total Orders= 17500
80% of total Orders= 20000
99% of total Orders= 24750
Unfilled Orders
70% Order Fill rate, unfilled Orders= 25000-17500= 7500
80% Order Fill rate, unfilled Orders= 25000-20000= 5000
99% Order Fill rate, unfilled Orders= 25000-24750= 250
Cash Flow Lost, when 70% order filled= (.70*7500*175) + (.30*7500*10000) + (.70*7500*250) = 918750+22500000+1312500= 24731250
Cash Flow Lost, when 80% order filled= (.70*5000*175) + (.30*5000*10000) + (.70*5000*250) = 612500+15000000+875000= 16487500
Cash Flow Lost, when 99% order filled= (.70*250*175) + (.30*250*10000) + (.70*250*250) =30625+750000+43750= 824375