Question

FastQ Company, a specialist in printing, has established 500 convenience copying centers throughout the country. In order to upgrade its services, the company is considering two new models of laser copying machines for use in producing high-quality copies.
These high-quality copies would be added to the growing list of products offered in the FastQ shops. The selling price to the customer for each laser copy would be the same, no matter which machine is installed in the shop. The two models of laser copying machines under consideration are 1024S (a small-volume model) and 1024M (a medium-volume model). The annual rental costs and the variable operating costs vary with the size of the machine. The machine capacities and costs are shown below:

	1024S	1024M
Annual capacity (copies)	100,000	350,000
Costs:
Annual machine rental	$ 8,000	$ 11,000
Variable costs per unit:
Cost of paper	0.02	0.02
Variable operating costs	0.12	0.07

a) Determine the volume level in copies at which FastQ Company would be indifferent between acquiring either the small-volume model (1024S) or the medium-volume model (1024M). Put your answer in the space provided and show and label your computations.
b) Draw a PV graph (NOT a CVP graph!) for the 1024S and 1024M models. Carefully label it as we did in class. Write down the values where all lines intersect an axis.
c) Which copier is better for establishments that are likely to sell 80,000 copies per year? Why?

Answer 1

Lets assume required quantity at which both the model will be indifferent or will produce same cost = q
Therefore we have below total cost
		1024S	1024M
Cost of paper		0.02*q	0.02*q
Variable operating cost		0.12*q	0.07*q
Total variable cost		0.14*q	0.09*q
Fixed cost =		8000	11000
total cost of both the model should be equal
so we have below equation
0.14q+8000 = 0.09q+11000
q= 3000/0.05
q=	60000
Hence, at 60000 quantity FastQ will be indifferent for selecting 1024S or 1024M