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CHAPTER IV

COST BENEFIT ANALYSIS


Example of COST BENEFIT ANALYSIS ( of Computer-Based Ordering System)
ANNUAL OPERATING COST OF THE EXISTING SYSTEM
Schedule 1 - SALARIES AND WAGES
Position
1 Owner

Monthly Salary
P

Annual Salary

11,200.00 P

145,600.00

1 Assistant

6,000.00

78,000.00

1 Barista

7,000.00

91,000.00

TOTAL ANNUAL SALARY

314,600.00

Schedule 2 - DEPRECIATION OF FURNITURES, MACHINES, & EQUIPMENT


Annual Depreciation Cost = (cost of unit * no. of unit) - Salvage Value
Life Expectancy
ITEMS

COST

Annual
Depreciation

2 Electric Fan

3,500.00

(3,500*2) - 20%

2 Sofa

5,500.00

(5,500*2) - 20%

1,260.00

1,650.00

2,910.00

5
6
TOTAL COST

9,000.00

TOTAL ANNUAL DEPRECIATION COST

Schedule - 3 OFFICE SUPPLIES


ITEMS
1 pencil ( P10 @)

Monthly Expenses
P

10.00 P

Annual Expenses
120.00

2 ballpens ( P20 @ )

40.00

1 record books ( P 150 @)


4 small Orocan flexibox (P350 @)
4 receipt paper rolls (P50 @)

480.00

150.00

1,800.00

1,400.00

16,800.00

200.00

2,400.00

2 folders ( P10 @)

20.00

240.00

1 stapler ( P 50 @)

50.00

600.00

100.00

1,200.00

* Other Supplies
TOTAL ANNUAL EXPENSES

23,640.00

* List all office supplies that the company used in the existing system. You can
indicate the brand, quantity, and cost of each supplies.
Schedule 4 - ELECTRICITY
KWH /DAY = [(unit watts * no. of hrs. used/day) * no. of units / 1000]
KWH/ MONTH = KWH /DAY * no. of working days /month
KWH / MONTH
6 Flourescent Light @ 40 watts

[( 40 w * 8 hrs) * 6 units / 1000]


1.92 kwh * 28 days

2 Electric Fan @ 180 watts

[( 180 w * 8 hrs) * 2 units / 1000]


2.88 kwh * 28 days

53.76

80.64

TOTAL MONTHLY POWER CONSUMPTION

134.4

* BASIC CHARGE
Energy ( KWH)

134.4

P 1,915.92

First 10 @ 10.39

103.90

Next 40 @ 10.39

415.60

Next 134.4 @ 10.39

1,396.42
1,915.92 (assumed without any charges)

Total Monthly Electricity Consumption


Total Annual Electricity Consumption
SUMMARY :

P 22,991.04

SALARIES & WAGES

314,600.00

DEPRECIATION

2,910.00

OFFICE SUPPLIES

23,640.00

ELECTRICITY

22,991.04

* MISC. COST

10,000.00 * Assumed only.

TOTAL ANNUAL OPERATING


COST OF THE EXISTING SYSTEM

374,141.04

ANNUAL OPERATING COST OF THE PROPOSED SYSTEM


Schedule 5 - SALARIES AND WAGES
Position
1 Owner
1 Barista

Monthly Salary
Annual Salary
11,200.00 P 145,600.00
7,000.00
91,000.00

TOTAL ANNUAL SALARY

236,600.00

Schedule 6- DEPRECIATION OF FURNITURES & EQUIPMENT


Annual Depreciation Cost = (cost of unit * no. of unit) - Salvage Value
Life Expectancy
ITEMS
COST
2 Electric Fan

2 Sofa

TOTAL COST
TOTAL ANNUAL DEPRECIATION COST

Annual
Depreciation
3,500.00 (3,500*1) - 20% P
1,260.00
5
5,500.00 (5,500*2) - 20% P
1,650.00
6
9,000.00
P
2,910.00

Schedule 7 - HARDWARE AND SOFTWARE DEPRECIATION COST


* Hardware Cost
1 Thermal Printer

1 Laptop

1 Touch Screen Monitor

1 CPU

1 Router

HARDWARE DEPRECIATION COST


* Software Cost
Windows 8.1
Microsoft Visual Studio 2010
Microsoft Office 2007
SW Depreciation Cost =

COST
4,500.00 (4,500*1) - 20% P
4
16,000.00 (16,000* 1) - 20%
4
7,500.00 (7,500* 1) - 20%
5
9,000.00 (9,000* 1) - 20%
5
800.00 (800* 1) - 20%
3

900.00
3,200.00
1,200.00
1,440.00
213.33
6,953.33

4,800.00
4,000.00
4,500.00
13,300.00
(13,300.00 - 20%)

5,320.00

2
HW & SW DEPRECIATION COST

13,926.67

Schedule - 8 OFFICE SUPPLIES


Monthly Expenses
ITEMS
1 ink cartridge(P 450 @)
3 thermal paper roll (P20 @)
* Other Supplies
TOTAL ANNUAL EXPENSES

Annual Expenses

450.00
60.00
70.00

5,400.00
720.00
840.00
6,960.00

* List all office supplies that the company used in the proposed system. You can
indicate the brand, quantity, and cost of each supplies.
Schedule 9 - ELECTRICITY
KWH /DAY = [(unit watts * no. of hrs. used/day) * no. of units / 1000]
KWH/ MONTH = KWH /DAY * no. of working days /month
KWH / MONTH
2 Flourescent Light @ 40 watts
1 Laptop @ 220 watts
1 Electric Fan @ 180 watts
1 Touch Screen Monitor @ 180 watts
1 Thermal Printer @ 80 watts
1 Router @ 60 watts
1 CPU @ 80 watts

* BASIC CHARGE
Energy ( KWH)
197.12
First 10 @ 10.39
Next 40 @ 10.39
Next 197.12 @ 10.39
Total Monthly Electricity Consumption

[( 40 w * 8 hrs) * 2 units / 1000]


0.64 kwh * 28 days
=
[( 220 w * 8 hrs)* 1 unit / 1000]

17.92

1.76 * 28 days
=
[( 180 w * 8 hrs) * 2 units / 1000]
1.44 kwh * 28 days
=
[( 180 w * 8 hrs)* 1 unit / 1000]

49.28

1.44 kwh * 28 days


=
[( 80 w * 8 hrs) * 1 unit / 1000]
0.64 kwh * 28 days
=
[( 60 w * 8 hrs) * 1 unit / 1000]
0.48 kwh * 28 days
=
[( 80 w * 8 hrs) * 1 unit / 1000]
0.64 kwh * 28 days
=
TOTAL MONTHLY POWER CONSUMPT

40.32

40.32

17.92
13.44
17.92
197.12

P 2,381.39
103.90
415.60
2,048.08
2,567.58 (assumed without any charges)

Total Annual Electricity Consumption


SUMMARY :
SALARIES & WAGES
DEPRECIATION FURNITURE
DEPRECIATION HARDWARE & SOFTWARE
OFFICE SUPPLIES
ELECTRICITY
* MISC. COST
TOTAL ANNUAL OPERATING
COST OF THE PROPOSED SYSTEM

P 30,810.96
236,600.00
2,910.00
13,926.67
6,960.00
30,810.96
10,000.00 * Assumed only.
P

301,207.63

DEVELOPMENT COST

Monthly
5 System Developers

25,000.00

3 mons.
75,000.00

( P 5,000 @)
TOTAL LABOR COST
HARDWARE COST

75,000.00
COST

1 Intel Core 2 Duo Laptop

16,000.00

1 i5 Laptop

25,000.00

1 Router

800.00

1 Canon e500 Printer

3,995.00

TOTAL COST

45,795.00
(45,795- 20%) / 4 =

TOTAL MONTHLY HW DEPRECIATION COST

9159.00
763.25

TOTAL (3) MONTHLY HW DEPRECIATION COST

2,289.75

* Software Cost
Windows 8.1

4,800.00

Microsoft Visual Studio 2010

4,500.00

Microsoft Office 2007

4,000.00
13,300.00

SW Depreciation Cost =

(13,300.00
( 14,000.00--20%)
20%)

5,320.00

2
TOTAL MONTHLY SW DEPRE. COST
TOTAL (3) MONTHLY SW DEPRE. COST

443.33
1,330.00

ELECTRICITY CONSUMPTION
KWH /DAY = [(unit watts * no. of hrs. used/day) * no. of units / 1000]
KWH/ MONTH = KWH /DAY * no. of working days /month
KWH / MONTH
2 Flourescent Light @ 40 watts

[( 40 w * 8 hrs) * 2 units / 1000]


0.64 kwh * 28 days

2 Laptop @ 220 watts

17.92

98.56

40.32

13.44

19.6

[( 220 w * 8 hrs)* 2 units / 1000]


3.52* 28 days

1 Electric Fan @ 180 watts

[( 180 w * 8 hrs) * 2 units / 1000]


1.44 kwh * 28 days

1 Router @ 60 watts

[( 60 w * 8 hrs) * 1 unit / 1000]


0.48 kwh * 28 days

1 Printer @ 350 watts

[( 350 w * 2 hrs) * 1 unit / 1000]


0.7 kwh * 28 days
TOTAL MONTHLY POWER CONSUMPTION

Energy ( KWH)

189.84

First 10 @ 10.39
Next 40 @ 10.39
Next 139.84 @ 10.39

189.84
P 1972.44

103.90
415.60
1,452.94
1,972.44

OFFICE SUPPLIES EXPENSES

Total Monthly Electricity Consumption

P 1972.44

Total 3 Months Electricity Consumption

P 5917.31

3 MONTHS Expenses

ITEMS
2 ballpens ( P5 @ )
1 ream short bond paper (P250 @)
6 metal clips (P8/3 pcs)
3 Folders(P10 @)
1 Ink Printer ( 1100 @)

10.00
250.00
16.00
30.00
1,100.00

* Other Supplies

100.00

TOTAL 3 Months EXPENSES

SUMMARY of Development Cost


Labor Cost

75,000.00

Depreciation Cost of Hardware

2,289.75

Depreciation Cost of Software

1,330.00

Electricity Cost

5,917.31

Offies Supplies Cost

1,506.00

Other Costs
Total Development Cost

2,000.00
P 88,043.06

1,506.00

24

COST BENEFIT ANALYSIS


OPERATING COST OF THE EXISTING SYSTEM
Year 1
SALARIES & WAGES

Year 2

Year 3

Year 4

314,600.00

346,060.00

380,666.00

2,910.00

2,910.00

2,910.00

###

OFFICE SUPPLIES

23,640.00

26,004.00

28,604.40

31,464.84

ELECTRICITY

22,991.04

25,290.14

27,819.16

30,601.07

MISC. COST

10,000.00

11,000.00

12,100.00

13,310.00

P 374,141.04

P 411,264.14

P 452,099.56

P 497,018.51

DEPRECIATION

418,732.60

TOTAL ANNUAL OPERATING


COST OF THE EXISTING SYSTEM

OPERATING COST OF THE PROPOSED SYSTEM


Year 1

Year 2

Year 3

Year 4

SALARIES & WAGES

236,600.00

260,260.00

286,286.00

314,914.60

DEPRE. FURNITURE

2,910.00

2,910.00

2,910.00

###

13,926.67

13,926.67

13,926.67

###

6,960.00

7,656.00

8,421.60

9,263.76

ELECTRICITY

30,810.96

33,892.06

37,281.26

41,009.39

MISC. COST

10,000.00

11,000.00

12,100.00

13,310.00

P 301,207.63

P 329,644.73

P 360,925.53

P 395,334.42

P 72,933.41

P 81,619.42

P 91,174.03

P 101,684.10

DEPRE.HARDWARE & SOFTWARE


OFFICE SUPPLIES

TOTAL ANNUAL OPERATING


COST OF THE PROPOSED SYSTEM
* Costs are assumed to increased by 10 % yearly
ANNUAL BENEFIT

ANNUAL BENEFIT = TOT ANNUAL OPERATING COST ( Existing ) - TOT. ANNUAL OPERATING COST ( Proposed)
INVESTMENT COST
Year 1
Development Cost

P 88,043.06

* Maintenance Cost
Total Investment Cost

Year 2

Year 3

Year 4

1,000.00

1,500.00

1,000.00

P 88,043.06

1,000.00

1,500.00

1,000.00

(15,109.65)

P 80,619.42

P 89,674.03

P 100,684.10

* Maintenance Cost is only assumed.


NET BENEFIT
NET BENEFIT = Annual Benefit- Total Investment Cost

Year 5
460,605.86
2,910.00
34,611.32
33,661.18
14,641.00
P 546,429.37

Year 5
346,406.06
2,910.00
13,926.67
10,190.14
45,110.33
14,641.00
P 433,184.19
P 113,245.17

Year 5
1,000.00
1,000.00
P 112,245.17

PRESENT VALUE ANALYSIS


Year

Investment

Annual

Factor

Cost

Benefit

* (2.70%)

PV (C)

PV (B)

P 88,043.06

72,933.41

0.98

86,173.10

71,384.37

1,000.00

81,619.42

0.95

948.11

77,384.26

1,500.00

91,174.03

0.92

1,384.78

84,170.48

1,000.00

101,684.10

0.90

898.91

91,405.28

2,000.00

113,245.17

0.88

1,750.56

99,121.41

TOTAL

93,543.06

387,722.72

91,155.47

423,465.80

Note:
* Inflation Rate can be change.

PV (C) = Investment Cost * Factor

Factor = 1 / ( 1 + i )

PV (B) = Annual Benefit * Factor

PAYBACK PERIOD
Year

Cost of Invesment

Addt'l

Total

Annual

to be receive

Investment

Investment

Benefit

P 88,043.06

15,109.65

0
1,000.00

Balance

Payback
Period

88,043.06

72,933.41

15,109.65

16,109.65

81,619.42

(65,509.77)

1.00
1.00
2.0 YEARS

PAYBACK PERIOD = 2 YEARS


TOTAL INVESTMENT = Cost of Invest + Addt'l Invest
BALANCE = TotalInvest. - Annual Benefit

If balance is (+) then Payback Period = 1.0 year


If balance is (-) then Payback Period = Total Investment/ Annual Benefit

RETURN ON INVESTMENT (ROI)


ROI Year n = [Annual Benefit (year n) / Investment cost (year n)] * 100
ROI Year 1 =

82.84% ROI Year 3 =

6078.27%

ROI Year 2 =

8161.94% ROI Year 4 =

10168.41%

ROI Year 5 =

5662.26%

AVERAGE ROI = Average Annual Benefit / Total Investment Cost * 100


AVERAGE ROI =

82.90%

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