Automatic versus Manual Processing

Assume Office Depot processes 2,500,000 photocopies per month at its service center. Approximately 50% of the photocopies require collating. Collating is currently performed by high school and college students who are paid $10 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 6,000,000 photocopies, with lease and operating costs totaling $3,000, plus $0.05 per 1,000 units collated.

Required

a)Determine the total costs of collating 1,000,000 and 2,000,000 per month:

1. With student help.

2. With the collating machine.

b) Determine the monthly volume at which the automatic process becomes preferable

to (costs less than) the manual process.