As CEO of WaterSpray Marine, Sarabeth Wilson knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When IDG Consulting proposes that WaterSpray 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 management accountant. A month later, management accountant Matt Cook reports that the team and IDG estimate that if WaterSpray Marine implements the ERP system, it will incur the following costs:
a. $400,000 in software costs
b. $89,000 to customize the ERP software and load WaterSpray's data into the new
ERP system
c. $130,000 for employee training The team estimates that the ERP system should provide several benefits:
a. More efficient order processing should lead to savings of $118,000.
b. Streamlining the manufacturing process so that it maps into the ERP system will create savings of $120,000.
c. Integrating purchasing, production, marketing, and distribution into a single system will allow WaterSpray Marine to reduce inventories, saving $215,000.
d. Higher customer satisfaction should increase sales, which, in turn, should increase the present value of profits by $155,000.
Requirements
1. If the ERP installation succeeds, what is the dollar amount of the benefits?
2. Should WaterSpray 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?