Carolyn McKinsey is in charge of the copy center at Midwest University’s Business College. Carolyn seeks your help in figuring out how she should price the course packets that she prepares for many of the courses offered in the college. Her internal customers for course packets are the academic departments. The school charges each student a fixed fee for textbooks and notes, with each student getting the appropriate books and notes during the first class.

After investigating her costs and analyzing her operations, you determine that her major activities comprise the following:

Obtain copyrights for articles     This step applies to some articles only. The copy center must repeat this step each semester, 

                                                        even if the same article is used. Carolyn handled this step and estimated that a small course pack 

                                                        (5 or fewer articles) took about an hour to complete. Every additional article would consume about 

                                                        10 minutes. The average fee is $2 per article.

Make a master copy                    This step is done once per course pack. Faculty members usually change the pack slightly each semester, 

                                                        meaning that a new master must be made. Her assistant took ½ hour per course pack for this step.

Set up machine                            Load the appropriate type of cover, printing, and binding options. The staff person handled this chore and 

                                                  consumed ½ hour per order. This step was taken each time the job was run, regardless of the number of copies made.

Print and bind the copies           The number of copies made depends on the order from the department. Each course pack contains a 

                                                       different number of pages. Traditionally, the academic departments underestimate the number of copies needed. 

                                                       When enrollment is finalized, they ask for a rush job to make up the shortfall. Student assistants ran the copy machine. 

                                                       Carolyn insisted that a student stand by the machine in case of paper jams and such. 

                                                       The last thing she desires is for the machine to break down at the start of a semester.

Deliver to classroom                  The number of deliveries depends on the number of sections. One delivery per 30 course packs is a good rule of thumb. 

                                                       The student assistants did the delivery, averaging about ½ hour for each delivery.

Required:

a. Help Carolyn develop the price for a course pack that contains 12 articles (7 copyrighted) and that contains 240 copies (120 sheets of paper with double-sided printing). The instructor estimates the demand at 30 students.

b. The day before classes began, the instructor for the class discovered that actual enrollment is 40 students. Thus, Carolyn has to run an extra 10 copies. What is the cost of the resources consumed by the additional run?

c. The head of the Management and Organizations Department (a department that has many classes with large course packs) believes that the pricing scheme should only include the cost of papers and other consumables. He argues that the cost of the machine, Carolyn’s salary, and other such expenses are fixed costs and therefore are not relevant for the pricing decision. He further argues that this is a short-term decision because each course pack is valid only for one semester. Evaluate the merits of this argument.