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Accounting Information Systems
20.5. Rossco is considering the purchase of a new computer with the following estimated costs:
initial systems design, $54,000; hardware, $74,000; software, $35,000, one-time initial
training, $11,000; system installation, $20,000; and file conversion, $12,000. A net reduction of
three employees is expected, with average yearly salaries of $40,000. The system will decrease
average yearly inventory by $150,000. Annual operating costs will be $30,000 per year.
Rossco should proceed with the purchase. The internal rate of return of 23.23% is higher than the
hurdle rate of 11%. There is a positive NPV of $56,157. Payback is in 2.44 years.
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20.6 A recently completed feasibility study to upgrade XYZ’s computer system shows the
following benefits. Compensation figures in parentheses include wages, benefits, and payroll
taxes.
1. Production
a. Market forecasts, which take two $400 person-days a month, will be more accurate
with software making the calculations.
2. Engineering
a. Computerized updating of bills of material and operations lists will save 40% of an
engineer’s ($100,000) and 25% of a clerk’s ($60,000) time.
b. Computerized calculations of labor allocations, rates, and bonus details will save
40% of a clerk’s ($80,000) time.
Accounting Information Systems
Acceptable Items:
Cost Savings
1 (c) Eliminating 2 clerks saves money
$150,000 (2 * $75,000)
1 (a) More accurate market forecasts with software
$ 9,600 ($400/day * 2 days/month * 12 months
2 (a) Computerized updating of bills of materials
and operations lists saves money
$ 40,000 (40% of $100,000)
$ 15,000 (25% of $60,000)
2 ( b) Computerized calculations of labor
allocations, rates, and bonus details saves
money
$ 20,000 (40% of $80,000)
5 (a) Quickly determining new product costs will
save money
$ 30,000 (30% of $100,000)
3 Sales increases hard to incorporate into cost
justification due to lack of support for vague
estimates.
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20.7 The following list presents specific project activities and their scheduled starting and completion
times:
Activity Starting Date Ending Date
A Jan. 5 Feb. 9
B Jan. 5 Jan. 19
a. Using a format similar to that in Figure 18-3, prepare a Gantt chart for this project. Assume
that each activity starts on a Monday and ends on a Friday.
Project Planning Chart
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b. Assume today is February 16 and activities A and B have been completed, C is half
completed, F is a quarter completed, and the other activities have not yet commenced.
Record this information on your Gantt chart. Is the project behind schedule, on
schedule, or ahead of schedule? Explain.
Partially Completed Gantt chart
Once the activity bars have been filled in to reflect the activities that have been fully or partially
completed, it is a simple matter to evaluate whether the project is on schedule by looking down the
column corresponding to the current week. In this case, Activity C is one-half week shy of the
current date (Feb. 16), and Activity F is one-fourth week short. Therefore, the project is behind
schedule.
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c. Discuss the relative merits of the Gantt chart and PERT as project planning and control
tools.
Advantages of PERT:
• Indicates which activities are critical as well as how much slack is available in the
noncritical activities. This provides a basis for allocating resources to activities.
Advantages of GANTT Charts:
• It is easier to prepare than a PERT chart.
• Does not involve complex calculations and is thus less susceptible to error.
Accounting Information Systems
20.8 Recent years have brought an explosive growth in electronic communication. Laptops,
netbooks, e-readers, personal digital assistants, sophisticated cell phones, fax machines, e-
mail, teleconferencing, office productivity software, and sophisticated management
information systems have changed the way information is received, processed, and
transmitted. With the decreasing costs of computer equipment and the increasing power of
automation, the full impact of computerization has yet to be felt. Although the development of
computer applications is directed at being user friendly or user oriented, the integration of
computers into the organization has had both positive and negative effects on employees.
Adapted from the CMA Examination
a. Describe the benefits companies and employees receive from electronic
communications.
• Greater optimization of organizational resources, increasing productivity and profitability.
b. Discuss the organizational impact of introducing new electronic communication
systems.
The initial cost of some electronic communication systems is a major capital purchase,
c. Explain
1. Why an employee might resist the introduction of electronic communication systems
• They may fear and resist change. This may include the fear that they will be replaced
2. The steps an organization can take to alleviate this resistance.
• Communication of information as to why the system is being implemented and how
it will affect each employee‘s job. The intent should be to reinforce job security.
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20.9 PWR manufactures precision nozzles for fire hoses. Ronald Paige, an engineer, started the
corporation and it has experienced steady growth. Reporting to Ronald are six vice presidents
representing marketing, production, research and development, information services, finance,
and human resources. The information services department was established last year when
Adapted from the CMA Examination
a. Explain why the auditors would recommend an information systems steering committee
and discuss its specific responsibilities. What advantages can the committee offer
PWR? What advantages can such a steering committee offer PWR?
1. Because information systems span functional and divisional boundaries, organizations
establish an executive level steering committee so that the company, from an overall
organizational perspective, focuses on:
2. Specific steering committee responsibilities include:
• Developing a master plan to strategically develop and maintain the company’s
information system, incorporating short-term and long-term goals.
3. The advantages of an information systems steering committee include:
• Ensuring top management participation, guidance, and control of the IS function
b. Identify the PWR managers most likely to serve on the committee.
• The six vice-presidents or their representatives.
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• One or more members of the Information Systems Department.
Accounting Information Systems
20.10 Businesses often modify or replace their financial information system to keep pace with
their growth and take advantage of improved IT. This requires a substantial time and
resource commitment. When an organization changes its AIS, a systems analysis takes
place. Adapted from the CMA exam
a. Explain the purpose and reasons for surveying an organization’s existing system.
• To gain an understanding of the existing system and how it functions.
b. Explain the activities commonly performed during systems analysis.
Initial Investigation
• Verify the nature of the problem and the needs of the users.
• Gather the information needed to evaluate the feasibility of the request.
Systems Survey
• Study and review the existing organizational structure to determine how it functions.
• Collect and review internal documents and reports to determine design, content, use,
frequency of preparation, etc.
Feasibility Study
• Conduct a study to determine whether to continue with the project.
Information Needs and System Requirements