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Mid-Town Copy Service processes 2,100,000 photocopies per month at its mid-town service center. Approximately 50 percent of the photocopies require collating. Collating is currently performed by high school and college students who are paid $8 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 6,000,000 photocopies, with lease and operating costs totaling $1,550, plus $0.05 per 1,000 units collated.(a) Determine the total costs of collating 500,000 and 1,500,000 per month:1. With student help.2. With the collating machine.(b) Determine the monthly volume at which the automatic process becomes preferable to the manual process.

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Answer:

Mid-Town Copy Service

a. The total costs of collating 500,000 and 1,500,000 per month are:

                                                    500,000        1,500,000

1. With student help                         $800             $2,400

2. With the collating machine      $1,575              $1,625

b. The monthly volume at which automatic process becomes preferable to the manual process is:

= 1,050,000 photocopies.

Explanation:

a) Data and Calculations:

Monthly photocopies processed per month = 2,100,000

Photocopies requiring collation = 1,050,000 (50% * 2,100,000)

Cost of collating per hour = $8

Average number of copies collated by a student per hour = 5,000

Total cost of manual collating copies = $8 * 1,050,000/5,000 = $1,680

Lease cost of automatic collating machine = $1,550 + $0.05 per 1,000 units collated

The total costs of collating 500,000 and 1,500,000 per month:

                                                    500,000                    1,500,000

1. With student help                         $800                         $2,400

                                    ($8 * 500,000/5,000)  ($8 * 1,500,000/5,000)

2. With the collating machine       $1,575                         $1,625

       ($1,550 + $0.05* 500,000/1,000)  ($1,550 + $0.05* 1,500,000/1,000)

b. The monthly volume at which automatic process becomes preferable to the manual process is 1,050,000.

At this volume, costs are:            

Manual Process       = $1,680 ($8 * 1,050,000/5,000)

Automatic Process  = $1,603 ($1,550 + $0.05* 1,050,000/1,000)    

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