Question 34 A retail website sells a variety of products including clothes, elec

Question

Question 34 A retail website sells a variety of products including clothes, electronics, furniture, sporting goods, books, video games, CDs and DVDs, among other items. An average customer order is $49. weekly total variable costs are $365,000 and weekly fixed costs are $82,000. The company averages 18,300 orders per week and 18% of all orders are returned for a variety of reasons besides the customer not liking the product, including product misinformation on the website, errors in fulfilling the order, incomplete orders, defective product, breakage, etc. 30 percent of all returned orders are turned around and refilled correctly per the customer's desire, but at a cost (for handling, packaging, and mailing) of $10 per order, while the remaining 70% of returned orders are lost. In addition, it is estimated that half of the customers associated with lost orders will not return to the website at a cost of $14 per order Determine the weekly cost of poor quality for the website. (Round answers to 0 decimal places, e.g. 5,275 Weekly cost s The company can implement a quality improvement program for $800,000 a year that will reduce the percentage of returned orders to 4%; should the com pany invest in the program? Without quality improvements With quality improvements Total cost of defects .The company invest in the progranm LINK TO TEXT LINK TO TEXT LINK TO TEXT

Explanation / Answer

Number of customer orders returned = 18300*18% = 3294

Number of customer orders turned around and filled correctly = 3294*30% = 988.2

Number of customer orders lost = 3294*70% = 2305.8

Cost of customer orders for which customers will not return to the website = (2305.8/2)*14 = 16141

Cost of turning around returned orders = 988.2*10 = 9882

Weekly cost of poor quality for the website = 16141+9882 = 26,023

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