Moses Moonrocks Inc. has developed a balanced scorecard with a measure map that suggests that the number of erroneous shipments has a direct effect on operating profit. The company estimates that every shipment error leads to a reduction of revenue by $6,000 and increased costs of about $4,000. Sales $223,000 Cost of goods sold 143,000 Depreciation expense 16,000 Other expenses 14,000If the company has the above budgeted sales and costs for next month (without accounting for any possible shipping errors), determine how many shipping errors the company can afford to have and still break even.

The shipping error = 0.5%

Explanation:

The find step is to calculate the break even shipping errors.

The formula for break even shipping error is:

Net income/ cost of shipping errors

Then,

The sales ($223,000 -$6,000)                        = 217,000

Less

The cost of goods sold (143,000 + $4000)    =147,000

Depreciation expense =                                    $16,000

Other expenses                                                 = $14,000

The net income                                                 = 394,000

so,

Net income/ cost of shipping errors

$394000/ $4000 =98.5

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