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#### Automatic versus Manual Processing Solved

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E 15-15

(a)

 Monthly volume Fixed cost Variable cost Total cost Average cost per unit 100 \$  10,000.00 \$            30.00 \$  10,030.00 \$       100.30 1000 \$  10,000.00 \$         300.00 \$  10,300.00 \$    10.30 5000 \$  10,000.00 \$      1,500.00 \$  11,500.00 \$     2.30 10000 \$  10,000.00 \$      3,000.00 \$  13,000.00 \$  1.30

(b)

Average cost = 0.7

Let number of units is X

Total cost= 0.7X

As per given information, Total cost= 10000+0.3X

Equating both

0.7X= 10000+0.3X

X=25000

E15-16

(a)

1.      with the current employee-assisted process

 Photos per month Fixed cost Variable cost Total cost 20000 \$    7,000.00 \$     6,000.00 \$  13,000.00 50000 \$    7,000.00 \$   15,000.00 \$  22,000.00

2.      With the proposed customer self-service process

 Photos per month Fixed cost Variable cost Total cost 20000 \$  13,000.00 \$     1,000.00 \$  14,000.00 50000 \$  13,000.00 \$     2,500.00 \$  15,500.00

(b) Proposed process become preferable to current process when total cost under current process becomes higher than the total cost of the proposed process. This could happen at a specific monthly volume which can be calculated by equating costs under the both processes. Let at monthly volume X costs under both process become equal. Calculation of that monthly volume is,

7000+0.3X=13000+0.05X

.25X=6000

X=24000

Hence if at the volume from the 0-23999 current process is appropriate due to lower fixed cost and at a volume of 24000 units both processes are indifferent and at the volume, more than 24000 units proposed process is suggested because at this level total cost

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