Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Income Statement Sales Balance Sheet Cash & Accounts Receivable $6,000,000 In order to try to improve the efficiency of the distribution activities at Zecon, Mr.
Income Statement Sales Balance Sheet Cash & Accounts Receivable $6,000,000 In order to try to improve the efficiency of the distribution activities at Zecon, Mr. McDowall was considering implementing a new order processing system. A software company that specialised in order processing and distribution software had recently approached him. The new system looked very appealing, but seemed quite expensive: a start-up investment of $1.5 million dollars for new computer equipment. Mr. McDowall had therefore been considering the ramifications of this new system, and estimated the following: COGS Gross Margin Expenses EBIT $200,000,000 $120,000,000 $80,000,000 $64,000,000 $16,000,000 Inventory Other Current Assets Fixed Assets Total Assets $14,000,000 $5,000,000 $55,000,000 $80,000,000 Inventories will be reduced $3million Transportation consolidations would reduce transportation costs by $850,000 per year Warehousing costs of $200,000 per year will be eliminated The new order processing system will incur annual operating costs of $300,000 The new system will provide management with 4 additional days for planning production operations, thereby reducing costs of goods sold by 3% of current costs. To Do: a) Calculate the change in Return on Assets for the company [5 Marks). Show your workings. b) Make a recommendation (with justification) to Mr. McDowall as to whether he should implement the new system, or not. In making the recommendation, focus on areas of improved efficiency
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started