Concept explainers
Uncertainty and expected costs. 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 |
- 1. Prepare a table showing the cost of each plan for each quantity of monthly orders.
Required
- 2. What is the expected cost of each plan?
- 3. In addition to the information system’s costs, what other factors should Kindmart consider before deciding to implement a new B2B system?
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Chapter 3 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
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