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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.

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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

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