.11 95%0 3:09 PM Module 15 HW https://mybusinesscourse.com Menu e glenn vaca The

Question

.11 95%0 3:09 PM Module 15 HW https://mybusinesscourse.com Menu e glenn vaca The current service, which requires employees to download photos from customer cameras, has monthly operating costs of $5,000 plus $0.20 per photo printed. Management is evaluating the desirability of acquiring a machine that will allow customers to download and make prints without employee assistance. If the machine is acquired, the monthly fixed costs will increase to $9,000 and the variable costs of printing a photo will decline to $0.04 per photo (a) Determine the total costs of printing 20,000 and 50,000 photos per month Units Current Process Proposed Process 20,000 0 50,000 0 0 (b) Determine the monthly volume at which the proposed process becomes preferable to the current process

Explanation / Answer

ans)

a)       Current process Proposed process

20,000 50,000 20,000 50,000

Variable cost (0.2 per photo) 4000 10,000 800 2000

(0.04 X 20,000) (0.04 X 50,000)

Fixed cost 5000 5000 9000 9000

Total cost 9000 15000 9800 10,000

b) Indifference point = Change in fixed cost / change in variable cost per unit

= 9000 - 5000 / 0.2 - 0.04

= 4000 / 0.16

= 25000

At 25000 units monthly volume the proposed process becomes preferable to the current process

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