Question: Earth Entertainment is a provider of cable, Internet, and on- demand video services. Earth currently sends monthly bills to its customers via the postal service.
The cost of the paperless billing system would be $ 66,220 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 920,000 bills per quarter (more than 920,000 bills per quarter would require a different computer system and is outside the scope of the current situation at Earth.)
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:
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Requirements
1. Calculate the variable cost per bill mailed under the current paper- based billing system.
2. Assume that the company projects that it will have a total of 660,000 bills to mail in the upcoming quarter. If enough customers choose the paperless billing option so that 20% 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 10% of the mailings are converted to the paperless option (assume a total of 660,000 bills)? Should the company still offer the paperless billing system? Explain yourrationale.
Quarter1 Quarter 2 Quarter 3 Quarter 4 Total paper, toner, printer $62,700 $95,000 $800,000 $700,000 maintenance, and post- age costs Total number of bills 50,000 575,000 740,000 600,000 mailed
Step by Step Solution
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Req 1 Cost Activity Variable cost High pt 800000 740000 Q3 Low pt 672700 550000 Q1 ... View full answer
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