Automatic versus Manual Processing

Mid-Town Copy Service processes 2,000,000 photocopies per month at its mid-town service center. Approximately 60 percent of the photocopies require collating. Collating is currently performed by high school and college students who are paid $9 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 $1,056, plus $0.04 per 1,000 units collated.

(a) Determine the total costs of collating 500,000 and 1,400,000 per month:

1. With student help:

500,000 = $?

1,400,000 = $?

2. With the collating machine:

500,000 = $?

1,400,000 = $?

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

? = copies.

(c) Should Mid-Town Copy lease the automatic collating machine at this time? Select the best answer from below.

a) Midtown should lease the collating machine at the current monthly volume.

b) Given the current cost structure Midtown should not lease the collating machine regardless of the monthly volume.

c) Midtown should lease the collating machine only if the monthly volume is less than 600,000 copies.

d) Midtown should only lease the collating machine if the monthly volume is more than 500,000 copies.