Companies that have a high demand for making copies, both color and black and wh

Question

Companies that have a high demand for making copies, both color and black and white, often choose to lease a high-end copier that provides fast and reliable service at a reasonable cost. The lease is usually for three to five years and the cost to the user is $0.06 per page for black and white copies and typically $0.125 per page for color copies. These are the terms of your current three-year lease contract with Ricoh Company, which is up for renewal this month; the lease terms are expected to be the same for the next three years, if renewed Hewlett-Packard Company (HP) has recently developed an innovative copier that can reduce the cost of color copies. The copier measures exactly how much color is used in a color copy, so that the price of the copy can be determined by the amount of color used rather than a fixed price per page, so the cost could be as low as $0.095 per page for a color copy. HP calls this a "flexible-pricing" approach. Assume for this example that the cost of the leased copier (three-year lease) is only the per-page charge-the initial lease cost is negligible, and the service costs would not differ between the HP copier and the copier you are using now Your company is an advertising agency, Tanner and Jones, LLC, and the quality of the color copies is critical to your business success. The ability to rely on the copier at any time is also very important, as some customer requests require urgent attention. You believe that the Ricoh and HP printers are of the same reliability, but you have not had experience with the HP copier to be sure of the copy quality. The demonstration of the HP copier has shown as good or better copy quality, but you have not had three years' experience with it to know what it would be like day-to-day Required 1. Assume that your company is considering the lease of one of these HP copiers, and you expect that the average price for a color copy for your company would be S0.100 because you would carefully prioritize color copy jobs and reduce the number of copies requiring a large amount of color. You expect that training your copy center staff to properly use the new copier would cost about $5,850 for materials and lost work time. What is the breakeven number of color copies per year that would make you indifferent between the new HP copier and your current copier? (Do not round intermediate calculations Round your answer to the nearest whole number.) Breakeven number of color copies per year 2. As in part 1 above, assume you expect that your per-copy cost for color copies with the HP copier wil be $0.100, the training costs are $5,850, and you expect to make 140,000 copies per year for the next three years. In your negotiations with Ricoh concerning the new lease and the cost of color copies, what price would you bargain for? (Round your answer to 4 decimal places.) Bargain price

Explanation / Answer

1 Break even number of color copies: At break even Total cost under two alternatives will be same Ricoh cost=Cost per page for color copies*Break even number of color copies=0.125*x HP cost=Fixed cost+(Cost per page for color copies*Break even number of color copies)=5850+(0.100*x) Equating the above two, 0.125x=5850+0.100x 0.025x=5850 x=234000 This is for 3 years Break even number of color copies per year=234000/3=78000 2 Bargain price: Bargain price with Richo will be HP cost (Maximum price) Expected color copies per year=140000. Expected color copies for 3 years=140000*3=420000 HP cost=Fixed cost+(Cost per page for color copies*Break even number of color copies)=5850+(0.100*420000)=$ 47850 Let bargain price be P Ricoh cost=Bargain price*Expected color copies=P*420000 Ricoh cost=HP cost 420000P=47850 P=47850/420000=$ 0.114

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