19-3 Activity Category
The software vendor affirm that other companies installing and using Transactions Reduction have experienced a 50 percent per year reduction in transaction-related cost. Transaction Reduction's quoted price is $450,000 for the fully installed package , including employee training and customer support services. If the CFO purchase the software and the vender's savings estimates are correct, the software will recover its initial cost after2.22 years, computed as follows:
Transactions Activities Cost Pool =$460,200 × 50 % saving per year
= $203,100 per year
" Transactions Reduction"Cost = $450,000 ÷ $ 203,100 per year