In order to try to improve the efficiency of the distribution activities at Zecon, Mr. McDowall was considering implementing a new order processing system. A software company that specialised in order processing and distribution software had recently approached him. The new system looked very appealing, but seemed quite expensive: a start-up investment of $1.5 million dollars for new computer equipment. Mr. McDowall had therefore been considering the ramifications of this new system, and estimated the following: Inventories will be reduced $3million Transportation consolidations would reduce transportation costs by $850,000 per year Warehousing costs of $200,000 per year will be eliminated The new order processing system will incur annual operating costs of $300,000 The new system will provide management with 4 additional days for planning production operations, thereby reducing costs of goods sold by 3% of current costs. Calculate the change in Return on Assets for the company Show your workings. Make a recommendation (with justification) to Mr. McDowall as to whether he should implement the new system, or not. In making the recommendation, focus on areas of improved efficiency.
In order to try to improve the efficiency of the distribution activities at Zecon, Mr. McDowall was considering implementing a new order processing system. A software company that specialised in order processing and distribution software had recently approached him. The new system looked very appealing, but seemed quite expensive: a start-up investment of $1.5 million dollars for new computer equipment. Mr. McDowall had therefore been considering the ramifications of this new system, and estimated the following:
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Inventories will be reduced $3million
-
Transportation consolidations would reduce transportation costs by $850,000 per year
-
Warehousing costs of $200,000 per year will be eliminated
-
The new order processing system will incur annual operating costs of $300,000
-
The new system will provide management with 4 additional days for planning production
operations, thereby reducing costs of goods sold by 3% of current costs.
-
-
Calculate the change in Return on Assets for the company Show your workings.
-
Make a recommendation (with justification) to Mr. McDowall as to whether he should implement the new system, or not. In making the recommendation, focus on areas of improved efficiency.
-
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