Question

Mid-Town Copy Service processes 2,100,000 photocopies per month at its mid-town service center. Approximately 50 percent of the photocopies require collating. Collating is currently performed by high school and college students who are paid $8 per hour. Each student collates an average of 5,000 copies per hour. Management is contemplating the lease of an automatic collating machine that has a monthly capacity of 6,000,000 photocopies, with lease and operating costs totaling $1,550, plus $0.05 per 1,000 units collated.(a) Determine the total costs of collating 500,000 and 1,500,000 per month:1. With student help.2. With the collating machine.(b) Determine the monthly volume at which the automatic process becomes preferable to the manual process.

Answer 1

Mid-Town Copy Service

a. The total costs of collating 500,000 and 1,500,000 per month are:

500,000 1,500,000

1. With student help $800 $2,400

2. With the collating machine $1,575 $1,625

b. The monthly volume at which automatic process becomes preferable to the manual process is:

= 1,050,000 photocopies.

Step-by-step explanation:

a) Data and Calculations:

Monthly photocopies processed per month = 2,100,000

Photocopies requiring collation = 1,050,000 (50% * 2,100,000)

Cost of collating per hour = $8

Average number of copies collated by a student per hour = 5,000

Total cost of manual collating copies = $8 * 1,050,000/5,000 = $1,680

Lease cost of automatic collating machine = $1,550 + $0.05 per 1,000 units collated

The total costs of collating 500,000 and 1,500,000 per month:

500,000 1,500,000

1. With student help $800 $2,400

($8 * 500,000/5,000) ($8 * 1,500,000/5,000)

2. With the collating machine $1,575 $1,625

($1,550 + $0.05* 500,000/1,000) ($1,550 + $0.05* 1,500,000/1,000)

b. The monthly volume at which automatic process becomes preferable to the manual process is 1,050,000.

At this volume, costs are:

Manual Process = $1,680 ($8 * 1,050,000/5,000)

Automatic Process = $1,603 ($1,550 + $0.05* 1,050,000/1,000)