A drug store operates an in-store printing service for customers with digital cameras. The current service, which requires employees to download photos from customer cameras, has monthly operating costs of $7,500 plus $0.10 per photo printed. Management is considering the acquisition of a machine that allows customers to download and make prints without employee assistance. If the machine is acquired, monthly fixed costs will increase to $11,000 and the variable cost per photo will decrease to $0.04 per photo.
Required
1. In general, briefly describe variable, fixed, and mixed costs and explain how, as activity increases, the cost function changes for each type of cost.
2. Determine the total costs of printing 50,000 and 75,000 photos per month using the employee-assisted process and the self-service process
3. Determine the monthly volume at which the proposed process becomes preferable to the current process