Automatic versus Manual Processing

Red Star Copy Service processes 2,100,000 photocopies per month at its service center.

Approximately 50 percent of the photocopies require collating. Collating is currently performed

by high school and college students who are paid $9 per hour. Each student collates an average

of 5,000 copies per hour. Management is contemplating the lease of an automatic collating ma-

chine 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.

REQUIRED

a. Determine the total costs of collating 500,000 and 1,700,000 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.