Question 8

International Gourmet Experience Inc. (IGE) is a rapidly expanding company that specializes in planning luxurious gourmet experience escapes to exotic locations, for discerning “foodies.” IGE has been in business for 18 months. It faces stiff competition from a number of established companies offering similar services. The key to IGE’s early success has been extremely satisfied customers, which has resulted in repeat business as well as favourable word of mouth and web reviews.

IGE’s current accounting information system (AIS) is very rudimentary, consisting of a basic accounting software package that does not include a payroll module and that cannot be upgraded. IGE uses various spreadsheets to keep track of payroll, bookings, and customer satisfaction ratings of the different experience packages offered. 

The company’s management recognizes that in order to continue to grow, the company must maintain its high level of customer satisfaction while controlling costs. To facilitate this, management knows that it must upgrade the AIS to better manage the organization. The vicepresident of operations has asked you, CPA, IGE’s chief accountant, to research what options are available and to make a recommendation as to how to proceed. The VP stated that the criteria considered should include functionality, cost, reliability, compatibility with online purchases by customers, ability to accommodate continuing growth, and reducing duplicative data entry.

You have six people working for you in the accounting department, three of whom work out of their home offices. As such, a networked system with multi-user capabilities is required.

You are aware of the inadequacies of the current system and the issues they are causing and have researched various possibilities. You have narrowed the choice to three options as described below, all of which meet the requirements for multi-user functionality, network capability, compatibility, and reducing duplicative data entry. 

• Standard software package (SSP) — This software, which is widely used and is the industry norm, could be ready for use in six weeks. It can be purchased for $90,000. Your colleagues in the industry who use this product confirm that the software package is very reliable and meets their needs. SSP represents a significant improvement over IGE’s current AIS and includes 100% of the identified “must haves.” It also includes about 70% of IGE’s “nice to haves.” The capacity of the software package can be easily expanded at a later date on relatively short notice. The expected useful life of the software is four years.

• Cloud-computing software rental (CCS) — IGE can arrange to rent a hosted solution of the SSP detailed above at a cost of $2,500 per month based on a 24-month rental agreement. Arranging access takes about two weeks. When a hosted solution is used, expanding capacity is relatively seamless although the costs do rise incrementally. Obsolescence isn’t a concern as the host upgrades the system on an ongoing basis.

• Customized software package (CSP) — A reputable software designer quoted a fixed price of $100,000 to custom-build a system that meets all of IGE’s identified needs. The designer suggests that it will take between six to nine months before the system is ready to go live, with nine months being the absolute maximum. The designer’s proposed contract stipulates that the contracted price will be reduced by $300 per day for every day in excess of 270 days until the system is ready to go live. The expected useful life of the software is four years.

The system can be expanded at a later date; however, the expansion would have to be a customized solution designed by a software developer, at a cost that will likely be substantively higher than acquiring additional capacity for the SSP.

Required:

Use the CPA Way to analyze this situation and make a recommendation to the vice-president of operations of IGE.

Prep-IF1-ASN02