Moonlight Entertainment is a provider of cable, Internet, and on-demand video services. Moonlight currently sends monthly bills
Question:
The cost of the paperless billing system would be $288,600 per quarter with no variable costs since the costs of the system are the salaries of the clerks and the cost of leasing the computer system. The paperless billing system being proposed would be able to handle up to 990,000 bills per quarter (more than 990,000 bills per quarter would require a different computer system and is outside the scope of the current situation at Moonlight).
The company has gathered its cost data for the past year by quarter for paper, toner cartridges, printer maintenance costs, and postage costs for its billing department. The cost data are as follows:
Requirements
1. Calculate the variable cost per bill mailed under the current paper-based billing system. Use the high-low method.
2. Assume that the company projects that it will have a total of 760,000 bills to mail in the upcoming quarter. If enough customers choose the paperless billing option so that 45% of the mailings can be converted to paperless, how much would the company save from the paperless billing system (be sure to consider the cost of the paperless billing system)?
3. What if only 40% of the mailings are converted to the paperless option (assume a total of 760,000 bills)? Should the company still offer the paperless billing system? Explain your rationale.
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