April 1999
SA205: SYSTEMS ANALYSIS

QUESTION 2

Total Marks: 20 Marks

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GRADE A
Sample student's solutions are indicated in green.
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(a) Give one example of each of the following:
(i) Tangible costs. [1]
(ii) Intangible costs. [1]
(iii) Tangible benefits. [1]
(iv) Intangible benefits. [1]
(i) Tangible costs - Furniture costs

(ii) Intangible costs - Costs of maintenance of hardware

(iii) Tangible benefits - Reduce the use of paper and paper wastage

(iv) Intangible benefits - Increase customer satisfaction

 
(b) (i) One cost category associated with determining economic feasibility is annual operating costs. Describe two others. [4]
(ii) What is the equation for calculating annual operating costs? [1]
(iii) List four examples of annual operating costs. [4]
(iv) Given below is an example of the costs investigated after the preparation of a project proposal. Calculate the final annual cost based on the figures below. [4]
 
Initial investment costs:
Hardware/software materials $ 2,000
Development Team

 

 $ 15,000
Annual costs
Fixed costs:
Rent $ 1,000
Insurance $ 1,000
Equipment maintenance $ 500
Variable costs:
Salaries (due to down-sizing)

 

 $50,000
Conversion (implementation) plan:
Availability of required hardware cost $ 2,000
Conversion method (parallel)

 

 $ 5,000
Post-development:
Maintenance - first year $ NA
Upgrade in the third year $ 5,000 +
additional maintenance fees $ 1,000
Predicted re-investigation
due to technological advancements
conducted in the tenth year $ 10,000

 
(i) Investment cost
Investment cost is defined as non recurring capital outlay used to acquire and develop new software, equipment or facilities. Example : cost of software.

Implementation cost
Implementation cost is define as the one-time outlay cost used to install the new proposed system. Example : cost of  shifting the computer to new location.

(ii)
Annual       = Annual cost - ( investment cost + implementation cost )
operating                                            estimated system life in years
cost                                         

  1. Employees salaries
  2. Insurance for equipment
  3. Rent for the space of an equipment if space is rented basis
  4. Maintenance cost

(iv)
Annual cost = Investment cost + Implementation cost   + Annual Operating                          Estimated system life in years                               Cost

                         = 17,000 + 7,000     + 52,500
                                   10
                         = 2,400 + 52,500
                         = 54,900

The final annual cost based on the figures given is $54, 900

 
(c) Define with the use of a diagram, the term break-even analysis. [3]
sa205.gif (3529 bytes)

Break-even analysis is the point at which it become profitable for a proposed system to be implemented.
It is the point at which the total cost of the current system intersect the total cost of the proposed system.