Automatic versus Manual Processing (LO2)

Mid-Town Copy Service processes 1,800,000 photocopies per month at its mid-town service center.

Approximately 50 percent of the photocopies require collating. Collating is currentiy performed by high school and college students who are paid $8 per hour. Each student collates an average of 5,000 copies per hour. Management is contemplating the lease of an automatic collating machine that has a monthly capacity of 5,000,000 photocopies, with lease and operating costs totaling $1,550, plus $0.05 per 1,000 units collated.

Required

a. Determine the total costs of collating 500,000 and 1,500,000 per month:

1. With student help.

2. With the collating machine.

b. Determine the monthly volume at which the automatic process becomes preferable to the manual process. (p. 66)