Ground Entertainment is a provider of_ cable, Internet, and_ on-demand video services. Ground currently sends monthly…

Ground Entertainment is a provider of_ cable, Internet, and_
on-demand video services. Ground currently sends monthly bills to
its customers via the postal service. Because of a concern for the
environment and recent increases in postal_ rates, Ground
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 Ground 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 Ground adopts a
paperless billing system or not.
The cost of the paperless billing system would be $271,400 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 840,000 bills per quarter_ (more than 840,000 bills
per quarter would require a different computer system and is
outside the scope of the current situation at Ground_.) The company
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:
Data Table

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Total paper, toner, printer maintenance,

$689,400

$705,000

$810,000

$720,000

and postage costs

Total number of bills mailed

616,000

621,000

750,000

625,000

1.

Calculate the variable cost per bill mailed under the current_
paper-based billing system.

2.

Assume that the company projects
that it will have a total of740,000

bills to mail in the upcoming quarter. If enough customers choose
the paperless billing option so that 45_% of the mailings 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)?

3.

What if only 40_% 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.

If only 40% of the mailings are converted to the paperless
option, the company (should continue/no longer) offer the paperless
billing system because the company (loses/saves) (xxx)
from using the paperless billing system