Question

Competency

Design the steps to justify an information system initiative.

Scenario Information

BeGood Baking Supply is a small bakery supply company formed as a closely held corporation. The company supplies raw baking materials, paper goods, and equipment to restaurants and bakeries in three states in the upper mid-west. Most of its business, however, is located in a large metropolitan area. BeGood wants to increase its presence in the region and serve five states. In fact, the owners of BeGood would like 75% of their business to come from throughout the region rather than the current metropolitan area. In order to do this, the owners understand they must diversify offerings and lines of business.

Currently, BeGood has a phone center where customer orders are taken; these orders are then sent to shipping where the order is filled in its large warehouse and shipped within four days. BeGood outsources its shipping to a local trucking company. Once the order ships, all paperwork goes to the accounting department where it is entered into the accounting system. BeGood still uses the same accounting system it has used since the inception of the company. All aging of receivables and other analysis is done using Excel spreadsheets. Purchasing and tracking of inventory are done solely by the warehouse manager. Invoices for inventory purchasing are sent to the accounting department when goods are received.

The owners at BeGood are wondering how they can utilize an online presence and further automate its systems in order to facilitate its growth and diversify its business. The owners may also like to expand into the retail business.

You have been hired as a full-time staff accountant at BeGood Baking Supply and have been given the task of evaluating and recommending a viable accounting information system for the accounting and financial data of BeGood in order to facilitate expansion and diversification. As you begin your research, you realize that many departments are involved in the information system, and communication is key.

BeGood Baking Supply is considering adding an automated ordering module to their current AIS system. As the accountant pushing for this change, you are in charge of the analysis and presentation of the information and recommendation for the new system. In performing the analysis for your presentation, you have identified two possible modules that will fill the needs of the company. Both modules return a positive NPV.

Module Vendor	A	B
Useful Life	5 years	5 years
Acquisition Cost	300,000	250,000
Yearly Operating Costs	95,000	100,000
Yeaerly Benefits	205,000	150,000
Cost of Capital	10%	10%
Payback	1.5 years	2.5 years

Instructions

Your task is to present to management a proposal outlining your analysis and recommendation of which system to purchase. Write a proposal to management outlining the decision-making process and the system you recommend. Include in your proposal:

1. The steps necessary in evaluating and recommending an AIS module. Note: these are the steps you would take to educate yourself on the need for a new model, the options available, and the choice of the best module.
2. List of needs BeGood has with respect to this automated ordering module. Include present needs as well growth needs
3. List of criteria you used in choosing a module. Include financial criteria, expansion and growth criteria, and current needs. Be sure to address internal control and audit needs.

Answer 1

Computation of Net Present Value for both Modules:-
Particulars				Module A
	Year-0	Year-1	Year-2	Year-3	Year-4	Year-5	Total
1.Acquisition Cost	(300,000)						(300,000)
2.Yearly Operating Costs		(95,000)	(95,000)	(95,000)	(95,000)	(95,000)	(475,000)
3.Yearly Benefits		205,000	205,000	205,000	205,000	205,000	1,025,000
4.Free Cash Flows(1+2+3)	(300,000)	110,000	110,000	110,000	110,000	110,000	250,000
5.Discount Factor @ 10%	1	0.9091	0.8264	0.7513	0.6830	0.6209
6. Discounted Cash Flows(4*5)	(300,000.00)	100,000.00	90,909.09	82,644.63	75,131.48	68,301.35	116,986.54
Particulars				Module B
	Year-0	Year-1	Year-2	Year-3	Year-4	Year-5	Total
1.Acquisition Cost	(250,000)						(250,000)
2.Yearly Operating Costs		(100,000)	(100,000)	(100,000)	(100,000)	(100,000)	(500,000)
3.Yearly Benefits		150,000	150,000	150,000	150,000	150,000	750,000
4.Free Cash Flows(1+2+3)	(250,000)	50,000	50,000	50,000	50,000	50,000	-
5.Discount Factor @ 10%	1	0.9091	0.8264	0.7513	0.6830	0.6209
6. Discounted Cash Flows(4*5)	(250,000.00)	45,454.55	41,322.31	37,565.74	34,150.67	31,046.07	(60,460.66)
Net Present Value = Discounted Cash Flows for Model A= 116986.54
Net Present Value = Discounted Cash Flows for Model B= -60460.66
Decision:-
Even though the Payback period is higher for for Moule 2 compared to Modue-1, it is advisable to select MODULE-1 as it has Positive and Higher Net Present Value