Part 25-26

Northern Gas move its sales order system to the Internet. Under the proposed gas stations and other merchants will use a secure site to check the availability and current price of various products and place an order. Customer service representatives dealers' orders over the phone; they record the information on a paper form, then manually enter it into the firm's computer system. CFO Karen Jensen believes that dealers will not adopt the new Internet system unless Northern Gas provides financial assistance to help them purchase or upgrade their computer systems. Jensen estimates this one-time cost at $740,000. Northern Gas will also have to invest $145,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $215,000. The Web system will enable Northern Gas to eliminate 25 clerical positions. Jensen estimates that the benefits of the new system's lower labor costs will have saved the company $1,430,000. Use a cost-benefit analysis to recommend to Jensen whether Northern Gas should proceed with the Internet-based ordering system. Give your reasons, showing supporting calculations. Jensen revises her estimates of the benefits from the new system's lower labor costs as calculated in P1-25A. She now thinks the savings will be only $928,000. Compute the expected benefits of the Internet-based ordering system. Would you recommend that Northern Gas accept the proposal? Before Jensen makes a final decision, what other factors should she consider