Panda Print manufactures and sells 20,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows:

Panda Prints current presses have a quality problem that causes variations in the shade of some colors. Its engineers suggest changing a key component in each press. The new component will cost $50 more than the old one. In the next year, however, Panda Print expects that with the new component it will (1) save 11,000 hours of rework, (2) save 1,000 hours of customer support, (3) move 190 fewer loads, (4) save 5,400 hours of warranty repairs, and (5) sell an additional 180 printing presses, for a total contribution margin of $1,620,000. Panda Print believes that even as it improves quality, it will not be able to save any of the fixed costs of rework or repair. Panda Print uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year.

Requirements:

1. Should Panda Print change to the new component? Show your calculations.

2. Suppose the estimate of 180 additional printing presses sold is uncertain. What is the minimum number of additional printing presses that Panda Print needs to sell to justify adopting the new component?

3. What other factors should managers at Panda Print consider when making their decision about changing to a new component?

Variable Fixed Total Cost Cost Cost Rework cost per hour Repair costs 84 $120$ 204 Customer support cost per hour Transportation cost per load Warranty repair cost per hour 35 360 94 65 115 120 100 475 214