Reference no: EM131715616

Question: No Toys for the Kids. Boise Toys, an e-retailer, had its vendor website shut down for two days due to a denial of service attack. The company's vendor website is an auction-based system where vendors compete to supply specific toy products at the lowest price. As Boise Toys uses a JIT system, it could not fill orders on its etail website which remained open for customer's orders during the two days. Charles Backus, the controller, estimates the dollar value of the unfillable customer's orders over the two-day period is $825,000. He believes that forty percent of those orders can be filled. The restoration and analysis labor costs of repairing the system are $220,000. The normal rate of return on sales for Boise Toys is 20 percent due largely to the Internet auction systems used with vendors. The shutdown of the vendor site required the emergency purchase of toy product from higher-priced vendors and increased shipping costs that together totaled $175,000. Mr. Backus believes the shutdown will affect Boise's rate of return. He provides the following estimates:

(1) 40 percent chance of a 10-percent decrease; or a 60 percent chance of a 25-percent decrease. Estimate the preliminary loss for Boise Toys. Is there anything else that Mr. Backus should consider in making the loss estimate?