As part of its promotional efforts, ABS grocery stores utilize weekly flyers at its locations. At each of the 75 stores, the company produces an estimated 1,000 promotional flyers per week. Each store uses its own printing shop, and each location incurs the same variable costs to use the machines. Installation costs incurred to set up the machine for printing a new flyer, printing costs(paper, ink, etc.), and maintenance costs comprise total production costs. On average, monthly production costs are estimated to be: $1,000 for installation,$3,000 for printing, and $1,000 for maintenance and are incurred at each location. The management considers moving printing to one centralized location. The company estimates that monthly installation costs for the single machine will be $1,000. Printing costs of $3,000 will remain the same to print1000 flyers for each of 75 stores. Maintenance costs of a single bigger machine will be $10,000 per month, and distribution of flyers will cost an additional $15,000 a month. Will ABS stores be able to exhibit economies of scale by moving printing to a centralized location? How much money will they save each year?
As part of its promotional efforts, ABS grocery stores utilize weekly flyers at its locations. At each of the 75 stores, the company produces an estimated 1,000 promotional flyers per week. Each store uses its own printing shop, and each location incurs the same variable costs to use the machines. Installation costs incurred to set up the machine for printing a new flyer, printing costs(paper, ink, etc.), and maintenance costs comprise total production costs. On average, monthly production costs are estimated to be: $1,000 for installation,$3,000 for printing, and $1,000 for maintenance and are incurred at each location. The management considers moving printing to one centralized location. The company estimates that monthly installation costs for the single machine will be $1,000. Printing costs of $3,000 will remain the same to print1000 flyers for each of 75 stores. Maintenance costs of a single bigger machine will be $10,000 per month, and distribution of flyers will cost an additional $15,000 a month. Will ABS stores be able to exhibit economies of scale by moving printing to a centralized location? How much money will they save each year?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
