A package printer is considering taking on a new line of packages for a CPC. Administration is deciding whether or not to produce the packages based upon information received from the financial office.
Financial Data:
To print the package line a new flexo press and in-line finishing line would need to be purchased at a price of $2,800,000. The price includes installation. Additional building modifications and expansion of floor space would cost $250,000.
Prepress setup costs (file analysis through platemaking) are estimated to cost about $2000.00 per package with 25 different package designs to be produced each year. Production costs per package would average $0.75 for paper, $0.15 for ink, and $0.20 per copy for press run and shipping. The food manufacturer is willing to pay the printer $1.15 per package printed.
The Problems:
Given the financial data, determine the following:
A. To recover a depreciation rate of 10% per year for capital investment (payoff investment over a ten-year period), how many packages must the printer produce annually to break even? How many packages must be shipped each week? At a production rate of 2000 per hour, how many hours per week must be devoted to the job at this volume?
B. How many packages must we print if we want a 6% ROI on our equipment investment this year? How many package units is that per week? At a production rate of 2000 per hour, how many hours per week must be devoted to the job at this volume?
C. If the publisher wants 100,000 package units per week, do you think taking on this publication is a good idea? What is the annual profit/loss?