Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
3 Since the expected benefits of €210,000 (requirement 2)
exceed the costs of €160,000 (requirement 1), Colombe-Déménagements should invest in the new system. Of course, these calculations assume additional sales and contribution margin from better on-time delivery performance. As long as additional contribution margin of €40,000 (costs of €160,000 –
variable cost savings of €120,000) can be realised (corresponding to additional sales of €40,000 ÷ 0.45 =
€88,889), investing in the new system is beneficial. Students might also suggest that considering only the variable cost savings as a result of fewer cartons being lost or damaged underestimates these benefits. Reducing the amount of lost or damaged cartons could enhance Colombe-
Déménagements’ reputation and could lead to higher sales and contribution margin. Other students might argue that the new system may also reduce the time required to transport goods (service quality measure (a. This too could lead to additional sales and greater contribution margin.
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