Star Gas wants to move its sales order system to the Internet. Under the proposed sys-tem, 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.
CFO Carrie Smith believes that dealers will not adopt the new Internet system unless Star Gas provides financial assistance to help them purchase or upgrade their computer network. Smith estimates this one- time cost at $ 735,000. Star 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 $ 235,000. The Internet system will enable Star Gas to eliminate 25 clerical positions. Smith estimates that the new system’s lower labor costs will have saved the company $ 1,210,000.
Use a cost- benefit analysis to recommend to Smith whether Star Gas should proceed with the Internet- based ordering system. Give your reasons, showing supporting calculations.