Sun Gas wants to move its sales order system to the web. Under the proposed system, gas stations and other merchants will use a web browser and, after typing in a password for the
Sun Gas webpage, will be able 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 web system unless Sun Gas provides financial assistance to help them purchase or upgrade their PCs. Smith estimates this one-time cost at $750,000. Sun Gas will also have to invest $150,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the sys-tem will be $230,000. The web system will enable Sun Gas to eliminate 25 clerical positions. Smith estimates that the new system’s lower labour costs will save the company $1,357,000.
Requirement
Use a cost-benefit analysis to recommend to Smith whether Sun Gas should proceed with the web-based ordering system. Give your reasons, showing supporting calculations. P1-32A Continuation of P1-31A: revised estimates (Learning Objective5) Consider the Sun Gas proposed entry into ecommerce in P1-31A. Smith revises her estimates of the benefits from the new system’s lower labour costs. She now thinks the savings will be only $933,000.