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A news clipping service is considering modernization. The company is currently using a manual process that has fixed costs of $400,000 per year and variable costs of $6.20 per item. The company is considering converting to a computerized process that has fixed costs of $1,3000,000 per year and variable costs of $2.25 per item.
a) If the same price is charged for either process, what is the annual volume beyond which the computerized process is more attractive?
b) Suppose that the company believes that it can earn an extra $2 per item in revenue for the computerized process compare to the manual process. What is the annual volume beyond which the computerized process is more attractive?
c) Now assume that the revenue for each process is the same. The demand is believed to be 200,000 units. What is the maximum variable cost per item for the computerized process so that it is preferred to the manual process at this level of demand?
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