A Yellow Pages directory company must decide whether it should compose the ads for its clients...
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A Yellow Pages directory company must decide whether it should compose the ads for its clients inhouse or pay a production company to compose them. To develop the ads inhouse, the company will have to purchase computers, printers, and other peripherals at a cost of $12,000. The equipment will have a useful life of 3 years, after which it will be sold for $2000. The employee who creates the ads will be paid $45,000 per year. In addition, each ad will have an average cost of $8 to prepare for delivery to the printer. A total of 4000 ads are anticipated for the next few years. Alternatively, the company can outsource ad development at a fee of $20 per ad regardless of the quantity. The current interest rate is 8% per year. What is the breakeven amount, and which alternative is economically better? A Yellow Pages directory company must decide whether it should compose the ads for its clients inhouse or pay a production company to compose them. To develop the ads inhouse, the company will have to purchase computers, printers, and other peripherals at a cost of $12,000. The equipment will have a useful life of 3 years, after which it will be sold for $2000. The employee who creates the ads will be paid $45,000 per year. In addition, each ad will have an average cost of $8 to prepare for delivery to the printer. A total of 4000 ads are anticipated for the next few years. Alternatively, the company can outsource ad development at a fee of $20 per ad regardless of the quantity. The current interest rate is 8% per year. What is the breakeven amount, and which alternative is economically better?
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Answer rating: 100% (QA)
To determine the breakeven amount we need to find the point where the costs of both alternatives are ... View the full answer
Related Book For
Introduction to Operations and Supply Chain Management
ISBN: 978-0132747325
3rd edition
Authors: Cecil B. Bozarth, Robert B. Handfield
Posted Date:
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