Question

As CEO of Ocean World​, Rita Greenwood knows it is important to control costs and to respond quickly to changes in the highly competitive​ boat-building industry. When DMG Consulting proposes that Ocean World invest in an ERP​ system, she forms a team to evaluate the​ proposal: the plant​ engineer, the plant​ foreman, the systems​ specialist, the human resources​ director, the marketing director, and the management accountant. A month​ later, management accountant Marcus Chumura reports that the team and DMG estimate that if Ocean World implements the ERP​ system, it will incur the following​ costs:

Costs of the Project

a. $360,000 in software costs

b. $72,000 to customize the ERP software and load OceanWorld​'s data into the new ERP system

c.$115,000 for employee training

Benefits of the Project

a.	More efficient order processing should lead to savings of $175,000.
b.	Streamlining the manufacturing process so that it maps into the ERP system will create savings of $125,000.
c.	Integrating​ purchasing, production,​ marketing, and distribution into a single system will allow OceanWorld to reduce​ inventories, saving $210,000.
d.	Higher customer satisfaction should increase​ sales, which, in​turn, should increase profits by $165,000.

Requirement 1. If the ERP installation​ succeeds, what is the dollar amount of the​ benefits?

If the ERP installation succeeds, the dollar amount of the benefits is

.

Requirement 2. Should OceanWorld install the ERP​ system? Why or why​ not? Show your calculations.

Complete the table below to calculate the expected net benefits​(costs) of the project. ​(Use parentheses or a minus sign for net​costs.)

Expected benefits
Expected costs
Net benefits (costs)

Since the expected value of the benefits ▼(are less than ,are greater than )the total​ costs, Ocean World▼(should not,should)undertake the project.

Requirement 3. Why did Stuckey create a team to evaluate DMG​'s​proposal? Consider each piece of​ cost-benefit information that management accountant Chumura

reported. Which person on the team is most likely to have contributed each​ item?

​(​Hint: Which team member is likely to have the most information about each cost or​ benefit?)

Stuckey formed a team to evaluate the feasabilty of installing an ERP system for the following reasons. ​(If a box is not used in the​ table, leave the box​ empty; do not select a​ label.)

Forming a team would lower the cost of evaluating the system.

She did not want to take sole responsibility for the decision

the project was too big for one person

the representatives of different functional business areas have different knowledge and information to contribute

the representatives of different functional business areas have the same knowledge and will offer similar perspectives.

Consider each piece of​ cost-benefit information that management accountant Chumura reported. Which person on the team is most likely to have contributed each​ item?

​(​Hint: Which team member is likely to have the most information about each cost or​ benefit?) ​(If a box is not used in the​ table, leave the box​ empty; do not select a​ label.)

a.	Estimating software costs
b.	Estimating cost of loading data into the new ERP system
c.	Customize the ERP software
d.	Estimate customization costs
e.	Estimate training costs
f.	Savings from more efficient order processing
g.	Savings from streamlining the manufacturing process
h.	Evaluate the effects of integrating purchasing, production,
	marketing, and distribution into a single system
i.	Estimate increase in sales from higher customer satisfaction
j.	Estimate benefits and costs

Answer 1

Expected profits = Saving in order processing+ Saving in manufacturing process+ Reduction in inventory+ higher sales

Expected Profits = $175000+ $125000+ $210000+$165000

Expected Profits = $675000

Expected Costs = Software Cost+Customisation of software+ Employee Training

Expected Costs = 360000+ 72000+115000

Expected Costs = 547000

Dollar Amount of benefit is = =

= $ 1.234

That means on each dollar spent firm will earn $1.234. So Yes Ocean world should install the ERP system

Net Benefit = Expected Profits- Expected Costs

= 675000- 547000

= $128000