Kindmart is an international retail store. Kindmart’s managers are considering implementing a new business-to-business (B2B) information system for processing merchandise orders. The current system costs Kindmart $2,000,000 per month and $55 per order. Kindmart has two options, a partially automated B2B and a fully automated B2B system. The partially automated B2B system will have a fixed cost of $6,000,000 per month and a variable cost of $45 per order. The fully automated B2B system has a fixed cost of $14,000,000 per month and a variable cost of $25 per order. Based on data from the past two years, Kindmart has determined the following distribution on monthly orders: Monthly Number of Orders          Probability     300,000                                  0.25  500,000                                      0.45  700,000                                    0.30  Q2. What is the expected cost of each plan?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Kindmart is an international retail store. Kindmart’s managers are considering implementing a new business-to-business (B2B) information system for processing merchandise orders. The current system costs Kindmart $2,000,000 per month and $55 per order. Kindmart has two options, a partially automated B2B and a fully automated B2B system. The partially automated B2B system will have a fixed cost of $6,000,000 per month and a variable cost of $45 per order. The fully automated B2B system has a fixed cost of $14,000,000 per month and a variable cost of $25 per order. Based on data from the past two years, Kindmart has determined the following distribution on monthly orders:

Monthly Number of Orders          Probability

    300,000                                  0.25 

500,000                                      0.45 

700,000                                    0.30 

Q2. What is the expected cost of each plan? 

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