Example on page 256

Kleber Enterprises is evaluating three accounting software products (A, B, and C) to support changes in
its internal accounting process. The costs of the software for these processes are:
Total Fixed cost Rupees required
Per accounting report
Software
A
s.!"",""" s.#"
Software
B
s.$"",""" s.!%
Software

s.&"",""" s.'"
Page 2!"
Ah(ed Cop) shop has a volu(e of '!%,""" blac* and white copies per (onth. Two sales(en have
(ade presentation for (achines of e+ual +ualit) and reliabilit). The ,e(on A has a cost of s.!,"""
per (onth and a variable cost of s."."$. The other (achine will cost onl) s.',%"" per (onth but the
toner is (ore e-pensive, driving the cost per cop) s."."$%. .f cost and volu(e are the onl)
considerations which (achine should Ah(ed purchased/
Practice Questions
01' 2eile 2achine 3hop lnc., has a '4)ear contract for the production of !"",""" gear housings for
a new off4road vehicle. 5wner 6arr) 2eile hopes the contract will be e-tended and the volu(e
increased ne-t )ear. 2eile has developed costs for three alternatives. The) are general4purpose
e+uip(ent (78E), fle-ible (anufacturing s)ste( (923) and e-pensive, but efficient, dedicated
(achine (:2). The cost data follow:
#E$ERA%
P&RP'SE
E(&)P*E$T
+#PE,
F%E-)B%E
*A$&FAT&R)$
#
S.STE*
+F*S,
/E/)ATE
/
*A0)$E
+/*,
Annual contracted
units
$"".""" $"".""" $""."""
Annual fixed cost 3.'"".""" 3.!"",""" 3.%"","""
Per unit 1aria2le cost 3.'%."" 3.'&."" 3.'$.""
i. ;hich process is best for this contract/
ii. :eter(ine the best process for each of the following volu(es: (') <%,""". (!) !<%,""". and ($)
$<%,""".
01! 3tan 9awcett=s co(pan) is considering producing a gear asse(bl) that it now purchases fro(
3alt 6a*e 3uppl). .nc. 3alt 6a*e 3uppl) charges s.& per unit with a (ini(u( order of $.""" units.
3tan esti(ates that it will cost s.'%,""" to set up the process and then s.'.>! per unit for labor and
(aterials. Either choice would have the sa(e cost at appro-i(atel) how (an) units/
01$ 3*i Boards, .nc., wants to enter the (ar*et +uic*l) with a new finish on its s*i boards. .t has
three choices:
(a) efurbish the old e+uip(ent at a cost of s.>"".
(b) 2a*e (a?or (odifications at the cost of s.','"" or
(c) 8urchase new e+uip(ent at a net cost of s.',>"".
.f the fir( chooses to refurbish the e+uip(ent, (aterials and labor would be s.'.'" per board. .f it
chooses to (a*e (odifications, (aterials and labor would be s.".<" per board. .f it bu)s new
e+uip(ent, variable costs are esti(ated to be s.".&" per board.
i. 7raph the three total cost lines on the sa(e chart.
ii. ;hich alternative should 3*i Boards, .nc. choose if it thin*s it could sell (ore than $,"""
boards/
iii. ;hich alternative should the fir( use if it thin*s the (ar*et for boards would be between
',""" and !,"""/
01& 3usan 2e)er, owner@(anager of 2e)er=s 2otor Court in Ke) ;est, is considering
outsourcing the dail) roo( cleanup for her (otel to :uff)=s 2aid 3ervice. 3usan rents an average of
%" roo(s for each of $#% nights ($#% - %" e+uals the total roo(s rented for the )ear).3usan=s cost to
clean a roo( is s.'!.%". The :uff)=s 2aid 3ervice +uote is s.'>.%" per roo( plus a fi-ed cost of
s.!%,""" for sundr) ite(s such as unifor(s with the (otel=s na(e. 3usan=s annual fi-ed cost for
space, e+uip(ent, and supplies is s.#',""". ;hich is the preferred process for 3usan, and wh)/
01% Keith ;hittingha(, as (anager of :esigns b) ;hittingha(,
is upgrading his CA: software. The high perfor(ance software
(A8) rents for s.$,""" per (onth per wor*station. The standard
perfor(ance software (38) rents for s.!,""" per (onth per
wor*station. The productivit) figures that he has available suggest
that the A8 software is faster for his *ind of design. Therefore, with
the A8 software he will need five engineers and with the 38
software he will need si-. This translates into a variable cost of
s.!"" per drawing for the A8 s)ste( and s.!&" per drawing for
the 38 s)ste(. At his pro?ected volu(e of >" drawings per (onth,
which s)ste( should he rent/