Case 5-2DVD4LESS.com is one of the many new firms that have a presence on the Web. It specializes in manufacturing and selling one type of high-end DVD player. By purchasing large volumes from a small number of suppliers, it receives a significant quantity discount. The reduced cost is passed on to its customer. DVD4Less.com manages to sell its DVD player for $200 less than all of its high-end competitors, thereby creating its competitive advantage.DVD4LESS.com receives 112,000 orders for DVD players annually. Each DVD player sells for $500, of which $200 is retained as gross profit. Last year, it filled 97% of all orders correctly. Of the orders filled incorrectly, DVD4LESS.com estimates that 20% of the customers cancel the order and the remainder will accept a second shipment, which results in a rehandling cost of $20 per order. To maintain customer goodwill, the firm gives a $35 invoice reduction for all units rehandled. DVD4LESS.com pays $1,950,000 annually for the transportation of its materials and delivery of its products. Its warehousing costs average $1,460,000 annually for the storage of its materials. DVD4LESS.com has $30 million of debt outstanding at an annual interest rate of 10%. The total cost for all selling and general administrative expenses (other operating costs) comes to $750,000, and $50,000 is held in cast at all times.DVD4LESS.com has an average inventory of $5 million. This large inventory is partially attributed to its purchasing policy and also to its inventory management system. The inventory carrying cost rate is estimated at 25% of the average inventory due to sales to medium-sized retailers. It’s accounts receivable averages $250,000 throughout the year due to sales to medium sized retailers. DVD4LESS.com has a large fixed asset base. It is comprised of land, the manufacturing facility, machinery, and various administrative offices that are valued at $64 million.DVD4LESS.com has explored a variety of options to improve its correct order fill rate. It is also interested in lowering its average inventory to improve its overall profit-ability. After weeks of presentation and heated debates, the decision is made to outsource its warehousing operations and inventory management. Many third-party logistics providers bid for the contract; in the end, it is awarded to Basileo Logistics for an annual cost of $500,000 (this is classified as other operating cost). By outsourcing, DVD4LESS.com manages to save $760,000 in warehousing expenses, reduces its average inventory by 30%, and now meets its 99% correct order fill rate. All other costs remain the same. The tax rate is 40%.Case Question:Calculate the net savings of the outsourcing of the warehousing and inventory management to Basileo Logistics.*The attached spreadsheet has calculations presented by you. My question is do the figures match the scenerio and if not, please revise. Thank you.
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