Northern Lights Electric Ltd.(NLE)is a small electric utility servicing small northern communities.The company currently sends monthly bills to its customers via the community post offices.Because of a concern for the environment and recent increases in postal rates,NLE 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. )While the company's management would like to switch to 100% paperless billing,many of its customers are not comfortable with paperless billing or may not have web access,so the paper billing option will remain regardless of whether NLE adopts a paperless billing system or not.
The cost of the paperless billing system would be $120,000 per year 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 200,000 bills per quarter (more than 200,000 bills per quarter would require a different computer system and is outside the scope of the current situation at NLE. )
NLE 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 is as follows:

The company projects that it will process a total of 460,000 bills next year.
Required:
1.Calculate the average variable cost per bill under the current paper-based billing system (rounded to the nearest cent).
2.What will be the effect on operating income if 30% of the customers switch to electronic billing?
3.Provide an example of a qualitative factor that would influence managements decision to adopt an electronic billing system.

Question

Northern Lights Electric Ltd.(NLE)is a small electric utility servicing small northern communities.The company currently sends monthly bills to its customers via the community post offices.Because of a concern for the environment and recent increases in postal rates,NLE 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. )While the company's management would like to switch to 100% paperless billing,many of its customers are not comfortable with paperless billing or may not have web access,so the paper billing option will remain regardless of whether NLE adopts a paperless billing system or not.
The cost of the paperless billing system would be $120,000 per year 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 200,000 bills per quarter (more than 200,000 bills per quarter would require a different computer system and is outside the scope of the current situation at NLE. )
NLE 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 is as follows:
  
The company projects that it will process a total of 460,000 bills next year.
Required:
1.Calculate the average variable cost per bill under the current paper-based billing system (rounded to the nearest cent).
2.What will be the effect on operating income if 30% of the customers switch to electronic billing?
3.Provide an example of a qualitative factor that would influence managements decision to adopt an electronic billing system.

Quizplus · Accepted Answer

The Answer of Northern Lights Electric Ltd.(NLE)is a small electric utility servicing small northern communities.The company currently sends monthly bills to its customers via the community post offices.Because of a concern for the environment and recent increases in postal rates,NLE 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. )While the company's management would like to switch to 100% paperless billing,many of its customers are not comfortable with paperless billing or may not have web access,so the paper billing option will remain regardless of whether NLE adopts a paperless billing system or not.
The cost of the paperless billing system would be $120,000 per year 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 200,000 bills per quarter (more than 200,000 bills per quarter would require a different computer system and is outside the scope of the current situation at NLE. )
NLE 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 is as follows:
  
The company projects that it will process a total of 460,000 bills next year.
Required:
1.Calculate the average variable cost per bill under the current paper-based billing system (rounded to the nearest cent).
2.What will be the effect on operating income if 30% of the customers switch to electronic billing?
3.Provide an example of a qualitative factor that would influence managements decision to adopt an electronic billing system.