10-33 Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each...

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10-33 Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows: Rework cost per hour Variable Cost Fixed Cost Total Cost $ 79 $115 $ 194 Repair costs Customer support cost per hour 35 55 90 Transportation cost per load 350 115 465 Warranty repair cost per hour 89 150 239 SpeedPrint's current presses have a quality problem that causes variations in the shade of some colours. Its engineers suggest changing a key component in each press. The new component will cost $70 more than the old one. In the next year, however, SpeedPrint expects that with the new component it will (1) save 14,000 hours of rework, (2) save 850 hours of customer support, (3) move 225 fewer loads, (4) save 8,000 hours of warranty repairs, and (5) sell an additional 140 printing presses, for a total contribution margin of $1,680,000. Speed Print believes that even as it improves quality, it will not be able to save any of the fixed costs of rework or repair. SpeedPrint uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year. Required 1. Should Speed Print change to the new component? Show your calculations. 10-33 Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows: Rework cost per hour Variable Cost Fixed Cost Total Cost $ 79 $115 $ 194 Repair costs Customer support cost per hour 35 55 90 Transportation cost per load 350 115 465 Warranty repair cost per hour 89 150 239 SpeedPrint's current presses have a quality problem that causes variations in the shade of some colours. Its engineers suggest changing a key component in each press. The new component will cost $70 more than the old one. In the next year, however, SpeedPrint expects that with the new component it will (1) save 14,000 hours of rework, (2) save 850 hours of customer support, (3) move 225 fewer loads, (4) save 8,000 hours of warranty repairs, and (5) sell an additional 140 printing presses, for a total contribution margin of $1,680,000. Speed Print believes that even as it improves quality, it will not be able to save any of the fixed costs of rework or repair. SpeedPrint uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year. Required 1. Should Speed Print change to the new component? Show your calculations.

Answer rating: 100% (QA)

To determine whether SpeedPrint should change to the new component we need to compare the total cost ... View the full answer