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CHAPTER 4

COST AND BENEFIT

This chapter shows the calculation of the total cost incurred in the existing
system, proposed system and the development cost. The chapter also includes the
Computation of Return on Investment which helps to know how will benefit the proposed
system. The Cost-Benefit Analysis is a process by which business decisions are analyzed.
The benefits of a given situation or business-related action are summed.
ANNUAL OPERATING COST OF EXISTING
Schedule 1-SALARIES AND WAGES
Position
6 Staffs (7,000@)
TOTAL ANNUAL SALARY

Monthly Salary
P42,000

Annual Salary
P504,000
P504,000

Schedule 2-DEPRECIATION OF FURNITURES, MACHINES & EQUIPMENT


Annual Depreciation Cost = (cost of unit * no. of unit) - Salvage Value
Life Expectancy
Items
2 Filing Cabinet
4 Calculators

Computation

Annual

(P9,500*2)-20%

Depreciation
P2,171.43

7
(640*7)-20%

P739.20

5
TOTAL ANNUAL DEPRECIATION

P2,910.63

Schedule 3-OFFICE SUPPLIES


Items
20 Ball pens

Cost Per Unit


P5

Total Cost
P100

6 Record Books
6 ream Long Bond paper
7 Long Folders
3 Stapler s
3 Box of staple wire
TOTAL EXPENSES

P60
P190
P12
P65
P45

P360
P1,140
P84
P390
P270
P2,344.00

SUMMARY:
SALARIES AND WAGES

P504,000

DEPRECIATION

P2,910.63

OFFICE SUPPLIES

P2,344.00

*MISCELLANEOUS COST

P5,000.00

TOTAL OPERATING EXPENSES OF EXISTING SYSTEM P514,354.63


*Assumed Only
ANNUAL OPERATING COST OF THE PROPOSED SYSTEM
Schedule 4 - SALARIES AND WAGES
Position
2 Encoder @P12,000
TOTAL ANNUAL SALARY

Monthly Salary
P25,5000

Annual Salary
P306,000
P306,000

Schedule 5- HARDWARE AND SOFTWARE DEPRECIATION


Annual Depreciation Cost = (cost of unit * no. of unit) - Salvage Value
Life Expectancy
Hardware
3 HP 110-502d Computer Package
3 HP Printer

Computation
(P22,900*3)-20%

Annual Depreciation
P11,035.20

5
(6,990*2)-15%

P3,355.20

5
TOTAL HARDWARE COST
Software
Microsoft Windows 8 Pro
Microsoft Office 2013
TOTAL SOFTWARE COST
SW Depreciation Cost

P14,390
Cost
P8,280
P4,495
P12,775
(P12,775-20%)

P5,110

5
HW & SW DEPRECIATION
COST

P19,500.40

Schedule 6-OFFICE SUPPLIES


Item
2 Printer Ink
6 ream hard copy bond paper
TOTALEXPENSE

Cost Per Unit


P600
190

Total Cost
P1,800
2,280
P4,080

SUMMARY:
SALARIES AND WAGES

P306,000

DEPN HARDWARE & SOFTWARE

P19,540.40

OFFICE SUPPLIES

P1,200

*MISCELLANEOUS COST

P5,000

TOTAL OPERATING EXPENSES OF PROPOSED SYSTEM

P334,580.40

* Assumed only

DEVELOPMENT OF COST
Personnel
2 System Developer @P10,000
TOTAL LABOR COST
Hardware

Monthly
P20,000

1 Month
P40,000
P40,000
Monthly

1 Month

3 Laptop

Acer Aspire E5-411


Lenovo G4070
Toshiba Sattelite C55D

1 Sony Printer
Monthly Depn (67,480-20%)/5=10,797
TOTAL (1) MONTHLY HW

P16,488
P21,995
P23,999
P5,000
P899.75

DEPRECIATION COST
Software
Windows 8
Microsoft Office 2013
TOTAL SOFTWARE COST
(12,775-20%)/2=3,406.66
TOTAL (1) MONTHLY SW

Cost
P8,280
P4,495
P12,775

1 Month

P283.04

DEPRECIATION COST
Items

1 Month Expense

Ballpen

1 G-tech pen
5 Titus (7.50@)

1 ream Long Bond paper


Printer Ink
TOTAL 1 MONTH EXPENSE

P72
P38
P190
P600
P900

Miscellaneous
Globe and Smart
Transportation
Food
TOTAL MISCELLANEOUS

Cost
P999
P800
P2,000
P3,799

Hardware Acquisition Cost


2 Laptop

P16,488

Acer Aspire E5-411


Lenovo G4070
Toshiba Sattelite C55D

P21,995
P23,999
P5,000
P67,482

1 Sony Printer
TOTAL ACQUISITION COST
SUMMARY:
Personnel

P40,000

Depre. Cost of Hardware

P899.75

Depre. Cost of Software

P283.89

Office Supplies cost

P900

Miscellaneous

P3,799

Acquisition Cost

P67,482

TOTAL DEVELOPMENT COST

P113,364.64

COST AND BENEFIT


OPERATING COST OF EXISTING SYTEM
Salaries and Wages
Depreciation
Office Supplies
Misc.Cost
Total operating
expenses of

Year 1
P504,000
2,910.63
2,344
5,000

Year 2
P554,400
2,910.63
2,578.40
5,500

Year 3
P609,840
2,910.63
2,836.24
6,050

Year 4
P670,824
2,910.63
3,119.86
6,655

Year 5
P737,906.4
2,910.63
3,431.85
7,320

P514,254.63

P565,389.03

P621,636.87

P683,509.49

P751,569.38

existing system

OPERATING COST OF PROPOSED SYSTEM


Salaries and Wages
Hardware
Office Supplies
Misc. Cost

Year 1
P306,000
P19,500.40
P4,080
5,000

Year 2
P336,600
P19,500.40
4,488
5,500

Year 3
P370,260
P19,500.40
4,936.80
6,050

Year 4
P407,286
P19,500.40
5,430.48
6,655

Year 5
P448,014.6
P19,500.40
5.973.53
7,320.50

P334,580.40

P366,088.40

P400,747.20

P438,871.88

P480,809.02

Total operating
expenses of

proposed system
* Total Annual Operating Cost is assumed to increased by 10 % yearly
Annual Benefit

P179,674.23

P199,300.63

P220,889.67

P244,637.61

P270,760.35

ANNUAL BENEFIT = TOT ANNUAL OPERATING COST (Existing) - TOT. ANNUAL


OPERATING COST (Proposed)

INVESTMENT COST
Development Cost
Maintenace Cost
Total Investment

Year 1
P113,364.64
P113,364.64

Year 2
P3,000
P3,000

Year 3
P6,000
P6,000

Year 4
P9,000
P9,000

Year 5
P12,000
P12,000

Cost

* Maintenance Cost is only assumed.


Net Benefit

P66,309.59

P196,300.6

P214,889.6

P235,637.6

P258,760.3

3
7
1
5
NET BENEFIT = Annual Operating Cost of Existing -( Annual Operating Cost of
the Proposed + Total Investment Cost)
RETURN ON INVESTMENT
PRESENT VALUE ANALYSIS
Year

Investment

Annual

Factor

Benefit

1
2
3
4
5
TOTAL

Cost
P103,200.66
P3,000
P6,000
P9,000
P12,000
P143,364.64

*(10%)
0.91
0.83
0.75
0.68
0.62

P179,672.23
P199,300.63
P220,889.67
P244,637.61
P270,760.35

P1,115,262.49

PV (C)

PV (B)

P103,058.76
P2,479.34
P4,507.89
P6,147.12
P7,451.06
P123,644.17

P163,340.21
P164,711.26
P165,957.68
P167,090.78
P168,120.87
P829,220.81

Note:
*inflation rate can be change

PV (C) = Investment Cost * Factor

Factor= 1/(1+i)

PV (B) = Benefits * Factor

Payback Period
Year

1
2

Cost of

Additional

Total

Annual

Investment to be

Investment

Investment

Benefit

receive
113,364.64
47,055.05

0
3,000

109,565.64
50,055.05

176,674.23
199,300.63

Balance

Payback
Period

47,055.05
(153,245.58)

1.0
0.25
1.25
0.25*12 MONTHS = 3 MONTHS

PAYBACK PERIOD = 1 YEAR & 3 MONTHS

RETURN ON INVESTMENT
ROI Year n = (Annual Benefit (year n) / Investment cost (year n) *100
ROI Year 1
ROI Year 2
ROI Year 3
ROI Year 4
ROI Year 5

158.49%
6643.35%
3681.49%
2,718.20%
2,256.34%

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