Question

Automatic versus Manual Processing
Mid-Town Copy Service processes 2,200,000 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 $1,384, plus $0.07 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

   1. 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.
Answer

copies.

(c) Should Mid-Town Copy lease the automatic collating machine at this time?

Midtown should lease the collating machine only if the monthly volume is less than 800,000 copies.

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

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

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

Answer 1

a)	With help of Students
	No of Copies	500000	1400000
	Total hrs required for collating	500000/5000=100	1400000/5000=280
	Total Labor cost @ $ 9per hr	900	2520
	Total Cost	900	2520
	With help of Collating machine
	No of Copies	500000	1400000
	Lease Cost	1384	1384
	Operating cost @$0.07 per 1000 units	500000/1000*0.07=35	1400000/1000*0.07
	Total Cost	1419	1482
b)	Comparison
	No of Copies	500000	1400000
	With help of Students	900	2520
	With help of Collating machine	1419	1482
	Any monthly volume more than 800000 copies will be suitable for automatic process than manual process (WN.1)
	With help of Collating machine
(WN.1)	No of Copies	500000	600000	700000	800000	900000	1000000
	Lease Cost	1384	1384	1384	1384	1384	1384
	Operating cost @$0.07 per 1000 units	35	42	49	56	63	70
	Total Cost	1419	1426	1433	1440	1447	1454
	With help of Students
	No of Copies	500000	600000	700000	800000	900000	1000000
	Total hrs required for collating	100	120	140	160	180	200
	Total Labor cost @ $ 9per hr	900	1080	1260	1440	1620	1800