Cognet Inc has decided to acquire additional computer software with internet links in order to improve the effectiveness of the sales order department. The cost to the company of this initiative is estimated at$230,000 pa.

It is estimated that there will be the following cost and volume changes to activities in the sales order department:

(1)Reduction in overall salaries by 10% per annum, applied to the existing salary apportionments.

(2)Reduction of 60% in the stores/supplies cost in the sales literature activity only.

(3)$20,000 of the computer software cost will be allocated to the sales literature activity. The balance will be shared by the other activities in proportion to their existing share of IT costs.

(4)Sundry costs for customer negotiation, processing of orders and implementing dispatches will vary in proportion to the number of units of each activity. Sundry costs for sales literature and general administration will be unchanged.

(5)Amended volume of activity will be: total customers 2,600; customer negotiations 6,000; home orders 5,500; exportorders 2,000; dispatches to customers 18,750.

Recent industry average statistics for sales order department activities in businesses of similar size, customer mix and product mix are as follows:

Activity cost matrix – Sales order department

Required:

(a)Prepare a summary of the amended activity cost matrix (per matrix above) for the sales order department after implementing the proposed changes.

(b)Prepare an analysis (both discursive and quantitative/monetary as appropriate) which examines the implications of the IT initiative. The analysis should include the following.

Transcribed Image Text:

Cost per customer per year Cost per home order processed Cost per export order processed Cost per despatch Sales literature cost per customer Average number of orders per customer per year Average number of despatches per order $300 $50 $60 $8 $35 4.1 3.3 Cost per customer per year Cost per home order processed Cost per export order processed Cost per despatch Sales literature cost per customer Average number of orders per customer per year Average number of despatches per order $300 $50 $60 $8 $35 4.1 3.3

Answer rating: 100% (QA)

a The amended activity cost matrix is as follows Activity Total cost Customer negotiations Processin... View the full answer