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15 June, 20:17

A company intends to install new management software for its warehouse. The software will cost $ 55, 000 to buy and will cost an additional $ 151, 000 to install and implement. It is anticipated that it will save the company $ 39, 000 through reductions in staff and $ 63, 000 in general inventory costs in the first year after installation.

a. What is the benefit to the company in the first year if they choose to install the software?

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  1. 15 June, 20:29
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    By choosing to install the software the company will lose $104,000 as the costs of installation far outweigh the benefits derivable from deploying the new management software.

    Explanation:

    Find below detailed calculation of the benefits or (loss) from this course of action:

    The loss = Total benefits-total costs

    The cost of software $55,000

    Cost of installation $151,000

    Total cost of software $206,000

    Benefits

    Reduction in staff $39,000

    Saved general inventory costs $63,000

    Total benefits $102,000

    Loss from implementing software ($104,000)

    The software's deployment would have been worthwhile if the benefits is for a long term, hence the costs can be spread over a number of years.
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