Posted by Debbie on .
You just started a summer intership with the successful management consulting firm of Kirk, Spock, and McCoy. You first day on the job was a busy one, as the following problems were presented to you.
FastQ Company, a specialist in printing, has established 500 convenience-copying centers throughout the country. In order to upgrade its services, the company is considering three new models of laser copying machines for use in producing high-quality copies. These high-quality copies would be added to the growing list of products offered in the FastQshops. The selling price to the customer for each laser copy would be the same, no matter which machine is installed in the shop. The three models of laser copying machines under consideration are 1024S, a small-volume model; 1024M, a medium-volume model; and 1024G, a large-volume mode. The annual rental cost oand the operating cost vary with the size of each machine. The machine capacities and costs are as follows:
1024S 1024M 1024G
Annual capacity (copies) 100,000 350,000 800,000
Annual machine rental $ 8,000.00 $11,000.00 $20,000.00
Direct material and direct labor 0.02 0.02 0.02
Variable overhead costs 0.12 0.07 0.03
a. Calculate the volume level in copies where FastQ Company would be indifferent to acquiring either the small-volume model laser copier, 1024S, or the medium-volume model laser copier, 1024M.
b. The management of FastQ Company is able to estimate the number of copies to be sold at each establishment. Present a decision rule that would enable FASTQ Company to select the most profitable machine without having to make a separate cost calculation for each establishment. (Hint: To specify a decision rule, determine the volume at which FastQ would be indifferent between the small and medium copiers. Then determine the volume at which FastQ would be indifferent between the medium and large copiers).