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xelynncaldera
xelynncaldera
26.03.2020 • 
Business

Skye Entertainment is a provider of cable, Internet, and on-demand video services. Skye currently sends monthly bills to its customers via the postal service. Because of a concern for the environment and recent increases in postal rates, Skye’s 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). Although Skye would like to switch to 100% paperless billing, many of its customers are not comfortable with paperless billing or may not have online access, so the paper billing option will remain regardless of whether Skye adopts a paperless billing system or not. The cost of the paperless billing system would be $81,800 per quarter 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 1,000,000 bills per quarter (more than 1,000,000 bills per quarter would require a different computer system and is outside the scope of the current situation at Skye). Skye 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 are as follows:

Quarter 1 Quarter 2 Quarter 3 Quarter 4
Total paper, toner, printer maintenance, and postage costs $592,500 $600,000 $750,000 $610,000
Total number of bills mailed 475,000 4,95000 700,000 500,000

Requirements
a. Calculate the variable cost per bill mailed under the current paper-based billing system. Use the high-low method.
b. Assume that the company projects that it will have a total of 740,000 bills to mail in the upcoming quarter. If enough customers choose the paperless billing option so that 20% of the mailing can be converted to paperless, how much would the company save from the paperless billing system (be sure to consider the cost of the paperless billing system)?
c. What if only 1096 of the mailings are converted to the paperless option (assume a total of 740,000 bills)? Should the company still offer the paperless billing system? Explain your rationale.

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