Cost Planning; High-End Copiers Companies that have a high demand for making copies, bothcolor and black and white, often choose to lease a high-end copier that provides fast and reliableservice at a reasonable cost. The lease is usually for 3 to 5 years, and the cost to the user is $0.01 perpage for black-and-white copies and typically $0.10 per page for color copies. These are the terms ofyour current 3-year lease contract with Ricoh Company, which is up for renewal this month; the leaseterms are expected to be the same for the next 3 years, if renewed.Hewlett-Packard Company (HP) developed an innovative copier that can reduce the cost of color copies. The copier measures exactly how much color is used in a color copy so that the price of the copy canbe determined by the amount of color used rather than a fixed price per page. The cost could be as lowas $0.075 per page for a color copy. HP calls this a “flexible-pricing” approach. Assume for this examplethat the cost of the leased copier (3-year lease) is only the per-page charge—the initial lease cost is negligible, and the service costs would not differ between the HP copier and the copier you are using now.Your company is an advertising agency, Tanner and Jones LLC, and the quality of the color copiesis critical to your business success. The ability to rely on the copier at any time is also very importantbecause some customer requests require urgent attention. You believe that the Ricoh and HP copiersare of the same reliability, but you have not had experience with the HP copier to be sure of the copyquality. The demonstration of the HP copier has shown as good or better copy quality, but you havenot had 3 years’ experience with it to know what it would be like day-to-day.Required1. Assume that your company is considering the lease of one of these HP copiers, and you expect that theaverage price for a color copy for your company would be $0.075 because you would carefully prioritizecolor copy jobs and reduce the number of copies requiring a large amount of color. You expect thattraining your copy center staff to properly use the new copier would cost about $12,400 for materialsand lost work time. What is the breakeven number of color copies per year that would make you indifferent between the new HP copier and your current copier?2. As in requirement 1, assume you expect that your per-copy cost for color copies with the HP copier willbe $0.075, the training costs are $12,400, and you expect to make 200,000 copies per year for the next 3years. In your negotiations with Ricoh concerning the new lease and the cost of color copies, what pricewould you bargain for?3. Consider your choice between the copiers within the context of the competitive and business environment of Tanner and Jones. What are the issues you should consider in addition to the cost of copies?
Cost Planning; High-End Copiers Companies that have a high demand for making copies, both
color and black and white, often choose to lease a high-end copier that provides fast and reliable
service at a reasonable cost. The lease is usually for 3 to 5 years, and the cost to the user is $0.01 per
page for black-and-white copies and typically $0.10 per page for color copies. These are the terms of
your current 3-year lease contract with Ricoh Company, which is up for renewal this month; the lease
terms are expected to be the same for the next 3 years, if renewed.
Hewlett-Packard Company (HP) developed an innovative copier that can reduce the cost of color copies. The copier measures exactly how much color is used in a color copy so that the price of the copy can
be determined by the amount of color used rather than a fixed price per page. The cost could be as low
as $0.075 per page for a color copy. HP calls this a “flexible-pricing” approach. Assume for this example
that the cost of the leased copier (3-year lease) is only the per-page charge—the initial lease cost is negligible, and the service costs would not differ between the HP copier and the copier you are using now.
Your company is an advertising agency, Tanner and Jones LLC, and the quality of the color copies
is critical to your business success. The ability to rely on the copier at any time is also very important
because some customer requests require urgent attention. You believe that the Ricoh and HP copiers
are of the same reliability, but you have not had experience with the HP copier to be sure of the copy
quality. The demonstration of the HP copier has shown as good or better copy quality, but you have
not had 3 years’ experience with it to know what it would be like day-to-day.
Required
1. Assume that your company is considering the lease of one of these HP copiers, and you expect that the
average price for a color copy for your company would be $0.075 because you would carefully prioritize
color copy jobs and reduce the number of copies requiring a large amount of color. You expect that
training your copy center staff to properly use the new copier would cost about $12,400 for materials
and lost work time. What is the breakeven number of color copies per year that would make you indifferent between the new HP copier and your current copier?
2. As in requirement 1, assume you expect that your per-copy cost for color copies with the HP copier will
be $0.075, the training costs are $12,400, and you expect to make 200,000 copies per year for the next 3
years. In your negotiations with Ricoh concerning the new lease and the cost of color copies, what price
would you bargain for?
3. Consider your choice between the copiers within the context of the competitive and business environment of Tanner and Jones. What are the issues you should consider in addition to the cost of copies?
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