Sun Gas wants to move its sales order system to the Web Unde

Sun Gas wants to move its sales order system to the Web. Under the proposed system, gas stations and other merchants will use a Web browser and, after typing in a password for the Sun Gas webpage, will be able to check the availability and current price of various products and place an order. Currenthy, customer service representatives take dealers\' orders over the phone; they record the information on a paper form, and then mnuy enter it into the firm\'s computer system. (Click the icon to view the cost information.) (Click the icon to view the benefit information.) Requirement Use a cost-benefit analysis to recommend to Smith whether Sun Gas should proceed with the web-based ordering system. Give your reasons, showing supporting calculations. Requirement. Use a cost-benefit analysis to recommend to Smith whether Sun Gas should proceed with the web-based ordering system. (Use parentheses or a minus sign when entering a net cost.) Expected benefits Expected costs Net benefits (costs) Recommend to Smith whether Sun Gas should proceed with the web-based ordering system. Since the expected value of the benefits the total costs, Sun l proceed with the web-based ordering system. More Info More Info CFO Carrie Smith believes that dealers will not adopt the new Web system unless Sun Gas provides financial assistance to help them purchase or upgrade their PCs. Smith estimates this one-time cost at S770,000. Sun Gas will also have to nvest $150,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $280,000. The web system will enable Sun Gas to eliminate 25 cerical positions. Smith estimates that the new system\'s lower labour costs will save the company $1,357,000. Print Done PrintDone

Solution

Answer

Expected benefits: (A)

Saving in Labor Cost

1357000

Expected costs: (B)

One time cost

770000

Investment in own hardware

150000

Software & Fees

280000

1200000

Net benefits (costs)- (A-B)

$ 157000

Answer : Since the expected value of benefits EXCEEDS the total costs, Sun SHOULD proceed with the web based ordering system.

Expected benefits: (A)
Saving in Labor Cost		1357000
Expected costs: (B)
One time cost	770000
Investment in own hardware	150000
Software & Fees	280000	1200000
Net benefits (costs)- (A-B)		$ 157000