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Respected John sir,
Needed a bit of your help for understanding a point mentioned in part 4 Technical article based on ZBB. The following point is mentioned under Evaluation section:
Financial perspective
Decision package 2 is the more expensive option by $18, 750, or 8.7%. However, if the annual operating costs are considered, assuming the initial IT investment costs will be amortised, decision package 2 will bring annual savings of $34,750 (The difference between decision package 1 $171, 750 and decision package 2 $137, 000).
I do not understand the IT amortisation part. As in how are the figures arrived of 34750 and 171750 and 137000. The figures do not match the costs the writer found for each of teh decision package separately. Am too bemused.
Regards,
Package 1 gives a cost of 216,750. However the initial cost of 45,000 will be capitalised and will not be repeated each year. That leaves 171,750 that will be repeated.
Similarly, the annual cost of Package 2 will be 235,500 – 98,500 = 137,000.
That gives a saving each year of 171,750 – 137,000 = 34,750.
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