Fixed asset ROI calculation example

Example ROI Calculation for ABC Company:

Facts: 2,500 Assets
GBV = $2,500,000 (average asset cost = $1,000)
NBV = $1,250,000

Calculation of Benefits:
Current Scenario
Accountant I spends 25 hours per month manually entering data into an Access® database, generating basic reports, and processing transfers and disposals on a monthly basis. Based on a total, yearly salary of $65,000 (includes benefits and overhead costs), divided by 2080 total working hours per year, the hourly cost works out to around $32.00.

Annual cost for Accountant I = $9,600 ($32.00 X 25 hours X 12 months)

Accountant II spends 30 hours per month performing asset splits and more complex accounting events, producing depreciation calculations, posting to the G/L, closing books and generating senior management reports on a monthly basis. Based on a total, yearly salary of $80,000 (includes benefits and overhead costs), divided by 2080 total working hours per year, the hourly cost works out to around $39.00.

Annual cost for Accountant II = $14,040 ($39.00 X 30 hours X 12 months)

ABC Company has not conducted a complete physical audit in four years. Two members of the maintenance department and two members of the IT department performed the last physical audit. The inventory audit was completed with pencil and paper over a two-day period; total costs came to $2,000. During that two-day period, the IT helpdesk and maintenance work order support fell behind schedule.

Current Total Costs = $25,640 ($9,600 + $14,040 + $2,000)

Proposed Scenario
ABC Company’s new fixed asset and inventory tracking software provides a built-in link to its e-Procurement system, eliminating data entry time for Accountant I. The new system’s built-in report writer generates reports quickly and easily. Transfers and disposals are also completed with the click of a mouse, generating a full audit trail. Time spent on these tasks is dramatically reduced by 60 percent.

Accountant I costs lowered to = $3,840 ($9,600 – 60% or $5,760)

Accountant II also realizes significant time savings since assets splits and other complex accounting events are also now completed quickly and easily. Calculating and posting depreciation and closing books can now be accomplished with a few clicks of a mouse. Senior management reports that previously required research and pivot tables are now just the push of a button away. Time spent on these tasks is dramatically reduced by 60 percent.

Accountant II costs lowered to = $5,616 ($14,040 – 60% or $8,424)

With RAMI’s Track4000, accurate physical audits are completed in no time at all, typically in about 65 percent less time than it takes with pen and paper.

Total Audit Cost = $700 ($2,000 – 65% or $1,300)

Proposed Total Costs = $10,156 ($3,840 + $5,616 + $700)

Total Benefits: $15,484 ($25,640 – $10,156)

Furthermore, after completing its latest physical audit, ABC Company was unable to locate 10 percent of its assets; refer to the company facts above.

Cost of ghost assets = $250,000 (250 X $1,000)

Writing off the NBV associated with the ghost assets on the register, assuming a 39 percent corporate tax rate, results in a significant tax overpayment.

Income tax overpayment = $48,750 (39% of $125,000)

At a five percent property tax rate, the property tax overpayment is significant as well.

Property tax overpayment = $6,250 (5% of $125,000)

Lastly, at $.01 for every $1.00 of assets, there is a hefty insurance premium overpayment.

Insurance premium overpayment = $1,250 ($.01 X $125,000)

Total Overpayment (Tax + Insurance) = $56,250 ($48,750 + $6,250 + $1,250)

Total Benefits + Tax and Insurance Savings: $71,734 ($56,250 + $15,484)