Quality improvement, relevant costs, relevant revenues. TechnoPrint manufactures and sells 20,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows:

TechnoPrint’s current presses have a quality problem that causes variations in the shade of some colors. Its engineers suggest changing a key component in each press. The new component will cost $55 more than the old one. In the next year, however, TechnoPrint expects that with the new component it will (1) save 12,875 hours of rework, (2) save 900 hours of customer support, (3) move 200 fewer loads, (4) save 7,000 hours of warranty repairs, and (5) sell an additional 150 printing presses, for a total contribution margin of $1,800,000. TechnoPrint believes that even as it improves quality, it will not be able to save any of the fixed costs of rework or repair. TechnoPrint uses a one-year time horizon for this decision, because it plans to introduce a new press at the end of the year.

1. Should TechnoPrint change to the new component? Show your calculations.

2. Suppose the estimate of 150 additional printing presses sold is uncertain. What is the minimum number of additional printing presses that TechnoPrint needs to sell to justify adopting the new component?

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Variable Cost Fixed Cost Total Cost $ 80 $ 120 Rework cost per hour $ 200 Repair costs 100 Customer support cost per 40 60 hour 120 360 480 Transportation cost per load Warranty repair cost per hour 90 130 220