Question

A company intends to install new management software for its warehouse. The software will cost $ 55, 000 to buy and will cost an additional $ 151, 000 to install and implement. It is anticipated that it will save the company $ 39, 000 through reductions in staff and $ 63, 000 in general inventory costs in the first year after installation.
a. What is the benefit to the company in the first year if they choose to install the​ software?

Answer 1

Answer:

By choosing to install the software the company will lose $104,000 as the costs of installation far outweigh the benefits derivable from deploying the new management software.

Explanation:

Find below detailed calculation of the benefits or(loss) from this course of action:

The loss =Total benefits-total costs

The cost of software         $55,000  

Cost of installation          $151,000  

Total cost of software          $206,000  

 

Benefits  

Reduction in staff                   $39,000  

Saved general inventory costs      $63,000  

Total benefits                            $102,000  

Loss from implementing software ($104,000)

The software's deployment would have been worthwhile if the benefits is for a long term,hence the costs can be spread over a number of years.