Question

You are thinking of opening a small copy shop. It costs $5,000 to rent a copier for a year, and it costs $0.03 per copy to operate the copier. Other fixed costs of running the store will amount to $400 per month. You plan to charge an average of $0.10 per copy, and the store will be open 365 days per year. Each copier can make up to 100,000 copies per year.

A) For one to five copiers rented and daily demands of 500, 1,000, 1,500, and 2,000 copies per day, find annual profit. That is, find annual profit for each of these combinations of copiers rented and daily demand. If your answer is negative value, enter "minus" sign.

Answer 1

It is given that; the cost per copy is $0.03, variable cost (VC) = $0.03..

Selling price per copy is $0.10.

The cost of one copier for rental is $5000.

Other fixed cost is $400/month, i.e.,.

a)

Find the annual profit for each of the combinations of copiers rented and daily demand.

Now compute the total demand per year:

Therefore, the computed annual demand is given as follows:

For computing the annual cost per year and the yearly revenue generated, the capacity of the copier is to be taken care of. For example, capacity of single copier is given as 1,00,000 copies but the annual demand is exceeding the capacity of the single copier, therefore the annual cost and the revenue generated is to be computed only for 1,00,000 units not the demand as computed. Similarly, if two copiers are rented then the capacity becomes 2,00,000 copies so the demand of 500/day (1,82,500/year) can be satisfied but not the rest of the demands. For computing the total annual cost, the formula used is as follows:

Total Cost = Fixed Cost + Variable Cost.

For example, let for demand 500/day and 2 copiers, compute total cost as

Following table provides the total cost incurred for different demand and the number of copiers (considering the capacity of the copiers):

It can be observed that the demands 547500 and 730000 cannot be satisfied even with the 5 copiers and one copier cannot satisfy even any demand.

The revenue generated is computed using the following formula:

Therefore, following revenue is computed for different combinations of demand and the number of copiers:

Annual profit is given as . Thus, following table provides the annual profit: