?Pete\'s Cola Company is investigating the possibility of adopting a lean thinki

Question

?Pete's Cola Company is investigating the possibility of adopting a lean thinking philosophy throughout their organization. Estimated costs to set up the computer system are? $1,660,000; training employees in lean operations is estimated to cost? $175,000; and the general expenses of establishing the program are estimated at? $313,000. The estimated value of the potential savings is? $1,950,000. Do the benefits outweigh the costs or do the costs outweigh the? benefits, and by how? much?

A.

Costs outweigh benefits by? $115,000.

B.

Benefits outweigh costs by? $115,000.

C.

Costs outweigh benefits by? $198,000.

D.

Benefits outweigh costs by? $198,000.

Explanation / Answer

Calculation of total costs for setting up the system:-
Cost of setting up the computer system = $1,660,000
Cost of training employees = $175,000
General expenses = $313,000
Total costs = $2,148,000

Estimated value of potential savings = $1,950,000

Here the cost is higher than the potential savings by $198,000 i.e. ($2,148,000 - $1,950,000)
Hence the answer will be C. Costs outweigh benefits by $198,000.

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