ERP cost-benefit analysis (Learning Objective 5)
As CEO of Riverside Marine, Rachel Moore knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When Gerbig Consulting proposes that Riverside Marine invest in an ERP system, she forms a team to evaluate the proposal: the plant engineer, the plant foreman, the systems specialist, the human resources director, the marketing director, and the
A month later, management accountant Miles Cobalt reports that the team and Gerbig estimate that if Riverside Marine implements the ERP system, it will incur the following costs:
- a. $390,000 in software costs
- b. $85,000 to customize the ERP software and load Riverside Marine’s data into the new ERP system
- c. $112,000 for employee training
The team estimates that the ERP system should provide several benefits:
- a. More efficient order processing should lead to savings of $185,000.
- b. Streamlining the manufacturing process so that it maps into the ERP system will create savings of $255,000.
- c. Integrating purchasing, production, marketing, and distribution into a single system will allow Riverside Marine to reduce inventories, saving $215,000.
- d. Higher customer satisfaction should increase sales, which, in turn, should increase profits by $150,000.
Requirements
- 1. If the ERP installation succeeds, what is the dollar amount of the benefits?
- 2. Should Riverside Marine install the ERP system? Why or why not? Show your calculations.
- 3. Why did Moore create a team to evaluate Gerbig’s proposal? Consider each piece of cost-benefit information that management accountant Cobalt reported. Which person on the team is most likely to have contributed each item? (Hint: Which team member is likely to have the most information about each cost or benefit?)
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Managerial Accounting (5th Edition)
- Use ABC to allocate manufacturing overhead (Learning Objective 2)Several years after reengineering its production process, King Corporation hired a new controller, Christine Erickson . She developed an ABC system very similar to the one used by King's chief rival. Part of the reason Erickson developed the ABC system was because King's profits had been declining, even though the company had shifted its product mix toward the product that had appeared most profitable under the old system . Before adopting the new ABC system, the company had used a plantwide overhead rate, based on direct labor hours developed years ago .For the upcoming year, King's budgeted ABC manufacturing overhead allocation rates are as follows :ActivityMaterials handling .......................... Machine setup ................................ Insertion of parts ............................ Finishing .........................................Allocation BaseNumber of partsNumber of setupsNumber of partsFinishing…arrow_forwardAs CEO of Riverside Marine, Rachel Moore knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When Gerbig Consulting proposes that Riverside Marine invest in an ERP system, she forms a team to evaluate the proposal: the plant engineer, the plant foreman, the systems specialist, the human resources director, the marketing director, and the management accountant. A month later, the management accountant Miles Cobalt reports that the team and Gerbig estimate that if Riverside Marine implements the ERP system, it will incur the following costs: Costs of the Project a.$390,000 in software costs b. $85,000 to customize the ERP software and load Riverside Marine'sdata into the new ERP system c. $112,000 for employee training Benefits of the Project a. More efficient order processing should lead to savings of $185,000. b. Streamlining the manufacturing process so that it maps into the ERP…arrow_forwardIn today's fast-paced business environment, decision making is a critical task for managers. Making the right decisions is vital to the success of a company, and it requires access to relevant information. Cari Pump (CP) Company manufactures water pumps. An important part of the pump is its electronic component (EC). Cari Pump collects data with the following cost information about the costs of making ECs in 2019 and the expected costs in 2020: Current Costs (2019) Expected Costs (2020) Fixed manufacturing cost Fixed manufacturing overhead costs that can be avoided if ECs are not made 360,000 360,000 Fixed manufacturing overhead costs of plant depreciation, insurance, and administration that cannot be avoided even if ECs are not made 850,000 850,000 Variable manufacturing costs Direct material cost per EC…arrow_forward
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