Question

Ground Entertainment is a provider of​ cable, Internet, and​ on-demand video services. Ground currently sends monthly bills to its customers via the postal service. Because of a concern for the environment and recent increases in postal​ rates, Ground management is considering offering an option to its customers for paperless billing. In addition to saving​ printing, paper, and postal​ costs, paperless billing will save energy and water​ (through reduced paper​ needs, reduced waste​disposal, and reduced transportation​ needs.) Although Ground would like to switch to​ 100% paperless​ billing, many of its customers are not comfortable with paperless billing or may not have online​ access, so the paper billing option will remain regardless of whether Ground adopts a paperless billing system or not.

The cost of the paperless billing system would be $271,400 per quarter with no variable costs since the costs of the system are the salaries of the clerks and the cost of leasing the computer system. The paperless billing system being proposed would be able to handle up to 840,000 bills per quarter​ (more than 840,000 bills per quarter would require a different computer system and is outside the scope of the current situation at Ground​.) The company has gathered its cost data for the past year by quarter for​ paper, toner​ cartridges, printer maintenance​ costs, and postage costs for its billing department. The cost data are as​ follows:

Data Table

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Total paper, toner, printer maintenance,	$689,400	$705,000	$810,000	$720,000
and postage costs
Total number of bills mailed	616,000	621,000	750,000	625,000

1.	Calculate the variable cost per bill mailed under the current​ paper-based billing system.
2.	Assume that the company projects that it will have a total of740,000 bills to mail in the upcoming quarter. If enough customers choose the paperless billing option so that 45​% of the mailings can be converted to​ paperless, how much would the company save from the paperless billing system​ (be sure to consider the cost of the paperless billing​ system)?
3.	What if only 40​% of the mailings are converted to the paperless option​(assume a total of 740,000 ​bills)? Should the company still offer the paperless billing​ system? Explain your rationale.

If only 40% of the mailings are converted to the paperless option, the company (should continue/no longer) offer the paperless billing system because the company (loses/saves) (xxx)

from using the paperless billing system

Answer 1