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A company is deciding whether to purchase and maintain its own payroll system or to...

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Accounting

A company is deciding whether to purchase and maintain its own payroll system or to pay as a service from the cloud provider.

Estimate the 3-year cost of purchasing and maintaining the system considering one-time purchase costs of $12,000 for hardware and $10,000 for software. Also, consider the following maintenance, operation and upgrade costs per month: $100 for hardware, $100 for software, and $1,000 for IT staff.

Compare the total above with the 3-year cost of the cloud-based system for payroll processing. The cost to process payroll in the cloud is $200 per month (flat) plus $14 per employee per month if the company has 1-20 employees, $13 per employee per month for 21-50 employees, and $11 per employee per month for 51 or more employees. (Only one plan is needed, regardless of the number of locations.) The company estimates that the total number of employees will start at 15 and grow by 10% every month.

Make a model in which the company can change the estimates for the number of employees or unit fees and see the effects on the total cost.

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