Problem:
You just graduated from XYZ University. You have applied for a job with the prestigious Abacus Management Consulting Corp. There are many qualified candidates; in order to narrow down the field the firm has assigned each applicant the following hypothetical case:
Required: Supply the requested comments in each of the following independent situations.
1. RapidCopy Company, a specialist in printing, has established 500 convenient copying shops throughout the country. In order to update its services, the company is considering 3 new models of laser copiers for use in producing high-quality copies. These high-quality copies would be added to the growing list of products already offered in the RapidCopy shops. The retail price charged 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 copiers under consideration are the 3000S, a small volume model; the 3000M, a medium-volume model; and the 3000L, a large-volume model. The annual rental cost and the operating cost varies with the size of each copier. The copier capacities and costs are as follows:
Copier Model
3000S 3000M 3000L
Annual capacity (copies)........................ 100,000 350,000 800,000
Costs:
Annual machine rental...................$8,000 $11,000 $20,000
Direct material and direct labor ...... .02 .02 .02
Variable overhead costs ............... .12 .07 .03
a.) Calculate the volume level in copies where RapidCopy Company would be indifferent to acquiring either the small-volume model laser copier, 3000S, or the medium-volume model laser copier, 3000M.
b.) The management of RapidCopy Company is able to estimate the number of copies to be sold at each copy shop. Present a decision rule that would enable RapidCopy Company to select the most profitable copier without having to make a separate cost calculation for each copy shop. (Hint: To specify any decision rule, determine the volume at which RapidCopy would be indifferent between the small and medium copiers. Then determine the volume at which RapidCopy would be indifferent between the medium and large copiers.)