On Time Print manufactures and sells 23,000 high- technology printing presses each year. The variable and fixed costs of rework and repair are as follows:

On Time Print’s current presses have a quality problem that causes variations in the shade of some colors. Its engineers suggest changing a key component in each press. The new component will cost $ 35 more than the old one. In the next year, however, On Time Print expects that with the new component it will
(1) Save 12,875 hours of rework,
(2) SAVE 500 hours of customer support,
(3) Move 250 fewer loads,
(4) Save 6,800 hours of warranty repairs, and
(5) Sell an additional 175 printing presses, for a total contribution margin of $ 1,750,000.
On Time Print believes that even as it improves quality, it will not be able to save any of the fixed costs of rework or repair. On Time Print uses a 1- year time horizon for this decision because it plans to introduce a new press at the end of the year.

1. Should On Time Print change to the new component? Show your calculations.
2. Suppose the estimate of 175 additional printing presses sold is uncertain. What is the minimum number of additional printing presses that On Time Print needs to sell to justify adopting the new component?
3. What other factors should managers at On Time Print consider when making their decision about changing to a newcomponent?

  • CreatedJanuary 15, 2015
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