Author Question: Uncertainty and expected costs. Hillmart Corp., an international retail giant, is considering ... (Read 78 times)

vinney12 · **on:** Jul 6, 2018

Uncertainty and expected costs.

Hillmart Corp., an international retail giant, is considering implementing a new business-to-business (B2B) information system for processing merchandise orders. The current system costs Hillmart 1,000,000 per month and 45 per order. Hillmart has two options, a partially automated B2B and a fully automated B2B system. The partially automated B2B system will have a fixed cost of 5,000,000 per month and a variable cost of 35 per order. The fully automated B2B system has a fixed cost of 11,000,000 per month and 20 per order.
Based on data from the past two years, Hillmart has determined the following distribution on monthly orders:

Monthly Number of Orders Probability
300,000 0.15
400,000 0.20
500,000 0.40
600,000 0.15
700,000 0.10

Required:
1. Prepare a table showing the cost of each plan for each quantity of monthly orders.
2. What is the expected cost of each plan?
3. In addition to the information systems costs, what other factors should Hillmart consider before deciding to implement a new B2B system?

Question 2

In Chapter 7, business are required to complete the following payroll tasks
a. Withhold employee taxes
b. Pay employee and employer payroll taxes by specific deadlines
c. Submit payroll tax reports
d. All of the above
e. None of the above

zogaridan · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

1. Monthly Number of Orders Cost of Current System
300,000 1,000,000 + 45(300,000) = 14,500,000
400,000 1,000,000 + 45(400,000) = 19,000,000
500,000 1,000,000 + 45(500,000) = 23,500,000
600,000 1,000,000 + 45(600,000) = 28,000,000
700,000 1,000,000 + 45(700,000) = 32,500,000

Monthly Number of Orders Cost of Partially Automated System
300,000 5,000,000 + 35(300,000) = 15,500,000
400,000 5,000,000 + 35(400,000) = 19,000,000
500,000 5,000,000 + 35 (500,000) = 22,500,000
600,000 5,000,000 + 35 (600,000) = 26,000,000
700,000 5,000,000 + 35 (700,000) = 29,500,000

Monthly Number of Orders Cost of Fully Automated System
300,000 11,000,000 + 20(300,000) = 17,000,000
400,000 11,000,000 + 20(400,000) = 19,000,000
500,000 11,000,000 + 20(500,000) = 21,000,000
600,000 11,000,000 + 20(600,000) = 23,000,000
700,000 11,000,000 + 20(700,000) = 25,000,000

2. Current System Expected Cost:
14,500,000 0.15 = 2,175,000
19,000,000 0.20 = 3,800,000
23,500,000 0.40 = 9,400,000
28,000,000 0.15 = 4,200,000
32,500,000 0.10 = 3,250,000
22,825,000

Partially Automated System Expected Cost:
15,500,000 0.15 = 2,325,000
19,000,000 0.20 = 3,800,000
22,500,000 0.40 = 9,000,000
26,000,000 0.15 = 3,900,000
29,500,000 0.10 = 2,950,000
21,975,000

Fully Automated System Expected Cost:
17,000,000 0.15 = 2,550,000
19,000,000 0.20 = 3,800,000
21,000,000 0.40 = 8,400,000
23,000,000 0.15 = 3,450,000
25,000,000 0.10 = 2,500,000
20,700,000

3. Hillmart should consider the impact of the different systems on its relationship with suppliers. The interface with Hillmart's system may require that suppliers also update their systems. This could cause some suppliers to raise the cost of their merchandise. It could force other suppliers to drop out of Hillmart's supply chain because the cost of the system change would be prohibitive. Hillmart may also want to consider other factors such as the reliability of different systems and the effect on employee morale if employees have to be laid off as it automates its systems.

Answer to Question 2

d