(Cost-benefit analysis) Jim Logan, plant manager at UNO Manufacturing, is in¬ vestigating spoilage created by a machine that prints packing boxes for computers and other large, fragile items. At the beginning of each production run, fifty boxes are misprinted either because of miscoloration or misalignment. These boxes must be destroyed. The variable production cost per box is $5.50. The machine averages 300 setups for production runs each year.

A regulator is available that will correct the problem. Jim is trying to decide whether to purchase the regulator.

a. At what cost for the regulator would the benefit of acquisition not exceed the cost? What other factors should Jim consider in addition to the purchase price of the regulator?

b. If each setup produces an average of 1,000 boxes, what is the increased cost per good box that is caused by the spoiled units?

c. UNO Manufacturing runs 12 batches per year for Lok Corporation, which makes very specialized equipment in limited quantities. Thus, each batch contains only 20 boxes. If UNO Manufacturing is passing its spoilage cost on to customers based on batch costs, might Lok Corporation be willing to buy the regulator for UNO Manufacturing if the regulator costs $3,000? Justify your answer.

d. Why are the cost-per-box answers in parts b and c so different?

LO1