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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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