Question

CFO

KaylaKayla

TerrenceTerrence

believes that dealers will not adopt the new online system unless

NorthernNorthern

Gas provides financial assistance to help them purchase or upgrade their computer network.

Terrence

estimates this​ one-time cost at

$755,000.

NorthernNorthern

Gas will also have to invest

145,000

in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be

$245,000.

The online system will enable

NorthernNorthern

Gas to eliminate 25 clerical positions.

TerrenceTerrence

estimates that the benefits of the new​system's lower labor costs will have saved the company

$1,335,000.

Expected benefits
Expected costs
Net benefits (costs)

Answer 1

(A)Expected Benefits=$1,335,000

(B)Expected Costs=$(755,000+245,000) =$1,000,000

Net Benefits=(A)-(B)= $ 335,000

It is given that the company will have to eliminate 25 clerical positions, hence, that saves the cost and a saving in cost is treated as a benefit. Hence, the expected benefit is =$1,335,000.

It is given for this purpose the company has to incur a one-time cost of $755000 and the software and consulting fee would be $245000. These are the expected costs.

The upgrade of computer hardware does not account for a cost, as it an investment. Investment is not the same as cost. The company can claim depreciation on the upgrading expenses of machinery.