a large hospital wishes to create electronic images of old patient records for electronic management. it has identified three options: outsourcing the scanning to a service bureau, purchasing an office scanner and purchasing a highspeed production scanner. ( Since the records are old the time it takes to finsh the job is not a primary concern). outsourcing the job cots $0.50 per document, using the office scanner costs $0.40 per document and using the highspeed scanner costs $0.20 per document (these costs includes labor). The overhead (fixed) cost for outsoursing is negligible, the office scanner costs $10,000 and the highspeed production scanner costs $350,000. The equipment selection is a function of the number of documents to be scanned. What are the break- even points?

Question

a large hospital wishes to create electronic images of old patient records for electronic management. it has identified three options: outsourcing the scanning to a service bureau, purchasing an office scanner and purchasing a highspeed production scanner. ( Since the records are old the time it takes to finsh the job is not a primary concern). outsourcing the job cots $0.50 per document, using the office scanner costs $0.40 per document and using the highspeed scanner costs $0.20 per document (these costs includes labor). The overhead (fixed) cost for outsoursing is negligible, the office scanner costs $10,000 and the highspeed production scanner costs $350,000. The equipment selection is a function of the number of documents to be scanned. What are the break- even points?

Answer 1

To determine the break-even points for the three options, we need to calculate the point at which the costs of each option are equal. Let's denote the number of documents to be scanned as "X."

1. Outsourcing the scanning to a service bureau:
The cost per document is $0.50. Hence, the total cost of outsourcing is given by 0.50 * X. As the overhead cost is negligible, we do not consider it in this calculation.

2. Purchasing an office scanner:
The cost per document is $0.40. Additionally, there is a fixed cost of $10,000 for purchasing the office scanner. Therefore, the total cost of using the office scanner is given by 10,000 + (0.40 * X).

3. Purchasing a high-speed production scanner:
The cost per document is $0.20. Additionally, there is a fixed cost of $350,000 for purchasing the high-speed scanner. Hence, the total cost of using the high-speed scanner is given by 350,000 + (0.20 * X).

To find the break-even points, we need to equate the costs of each option:

0.50 * X = 10,000 + (0.40 * X) = 350,000 + (0.20 * X)

Now, let's solve the equation to find the break-even points:

0.50 * X = 10,000 + 0.40 * X
0.10 * X = 10,000
X = 10,000 / 0.10
X = 100,000

0.50 * X = 350,000 + 0.20 * X
0.30 * X = 350,000
X = 350,000 / 0.30
X ≈ 1,166,666.67

Therefore, the break-even points for the three options are:
1. Outsourcing: 100,000 documents
2. Office scanner: 100,000 documents
3. High-speed scanner: approximately 1,166,667 documents.