As CEO of AquaBoat Marine, Rick Wilson knows it’s important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When IDG Consulting proposes that AquaBoat Marine invest in an ERP system, he 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 management accountant. A month later, management accountant Matt Cook reports that the team and IDG estimate that if AquaBoat Marine implements the ERP system, it will incur the following costs:

a. $360,000 in software costs

b. $95,000 to customize the ERP software and load AquaBoat’s data into the new ERP system

c. $115,000 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 $270,000.

c. Integrating purchasing, production, marketing, and distribution into a single system will allow AquaBoat Marine to reduce inventories, saving $230,000.

d. Higher customer satisfaction should increase sales, which, in turn, should increase the present value of profits by $155,000.

The team knows that because of complexity, some ERP installations are not successful.

If AquaBoat Marine’s system fails, there will be no cost savings and no additional sales. The team predicts that there is an 80% chance that the ERP installation will succeed and a

20% chance that it will fail.

Requirements

1. If the ERP installation succeeds, what is the dollar amount of the benefits?

2. Should AquaBoat Marine install the ERP system? Why or why not? Show your calculations.

3. Why did Wilson create a team to evaluate IDG’s proposal? Consider each piece of cost-benefit information that management accountant Cook reported. Which person on the team is most likely to have contributed each item?