ERP cost-benefit analysis (Learning Objective 5)
As CEO of Riverside Marine, Rachel Moore knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When Gerbig Consulting proposes that Riverside Marine 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
A month later, management accountant Miles Cobalt reports that the team and Gerbig estimate that if Riverside Marine implements the ERP system, it will incur the following costs:
- a. $390,000 in software costs
- b. $85,000 to customize the ERP software and load Riverside Marine’s data into the new ERP system
- c. $112,000 for employee training
The team estimates that the ERP system should provide several benefits:
- a. More efficient order processing should lead to savings of $185,000.
- b. Streamlining the manufacturing process so that it maps into the ERP system will create savings of $255,000.
- c. Integrating purchasing, production, marketing, and distribution into a single system will allow Riverside Marine to reduce inventories, saving $215,000.
- d. Higher customer satisfaction should increase sales, which, in turn, should increase profits by $150,000.
Requirements
- 1. If the ERP installation succeeds, what is the dollar amount of the benefits?
- 2. Should Riverside Marine install the ERP system? Why or why not? Show your calculations.
- 3. Why did Moore create a team to evaluate Gerbig’s proposal? Consider each piece of cost-benefit information that management accountant Cobalt 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?)
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Managerial Accounting (5th Edition)
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