Gas wants to move its sales order system online. Under the proposed system, gas stations and other merchants will use a secure site to check the availability and current price of various products and place an order. Currently, customer service representatives take dealers' orders over the phone; they record the information on a paper form, then manually enter it into the firm's computer system. Required:
Use a cost-benefit analysis to recommend to Carlton whether Northern

Complete Question:

Northern Gas wants to move its sales order system online. Under the proposed system, gas stations and other merchants will use a secure site to check the availability and current price of various products and place an order. Currently, customer service representatives take dealers' orders over the phone; they record the information on a paper form, then manually enter it into thefirm's computer system.

Cost information

CFO , Kayla Flores believes that dealers will not adopt the new online system unless Northern

Gas provides financial assistance to help them purchase or upgrade their computer network.

Flores estimates this one-time cost at $745,000.

Northern Gas will also have to invest $165,000  in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $225,000.

The online system will enable Northern

Gas to eliminate 25 clerical positions.

Flores estimates that the benefits of the new system's lower labor costs will have saved the company $1,420,000.

Requirement:

Use a cost-benefit analysis to recommend if  Northern Gas should proceed with the online ordering system. Give yourreasons, showing supporting calculations.

Expected benefits

Expected costs

Net benefits (costs)

Cost benefit Analysis:

Expected benefits 1,420,000

Expected costs 1,135,000

Net Benefits (Costs) 285,000

Recommendation:

Northern Gas should proceed with the online sales order system to enable its gas stations and other merchants to use a secure site to check the availability and current price of various products and place an order, instead of the manual system of placing orders.

Explanation:

a) Data and Calculations:

Costs of investment in new ordering system:

Computer network upgrade = $745,000

Computer hardware upgrade    165,000

Software and consulting fee     225,000

Total costs =                            $1,135,000

Benefits:

Savings from elimination of clerical positions = $1,420,000

b) The cost benefit analysis (also known as a benefit cost analysis) that Northern Gas embarks on is a process by which it analyzes its decision to introduce an online sales ordering system and the elimination of manual clerical positions. The cost benefit model identifies the benefits of such a project as well as the associated costs, and subtracts the costs from benefits to determine the net benefit or cost.

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