Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows: Variable Cost Fixed Cost Total Cost $79 $115 $194 Rework cost per hour Repair costs Customer support cost per hour Transportation cost per load Warranty repair cost per hour 35 55 90 350 115 465 89 150 239 SpeedPrint's current presses have a quality problem that causes variations in the shade of some colors. Its engineers suggest changing a key component in each press. The new component will cost $70 more than the old one. In the next year, however, SpeedPrint expects that with the new component it will (1) save 14,000 hours of rework, (2) save 850 hours of customer support, (3) move 225 fewer loads, (4) save 8,000 hours of warranty repairs, and (5) sell an additional 140 printing presses, for a total contribution margin of $1,680,000. SpeedPrint believes that even as it improves quality, it will not be able to save any of the fixed costs of re- work or repair. SpeedPrint uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year.
Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows: Variable Cost Fixed Cost Total Cost $79 $115 $194 Rework cost per hour Repair costs Customer support cost per hour Transportation cost per load Warranty repair cost per hour 35 55 90 350 115 465 89 150 239 SpeedPrint's current presses have a quality problem that causes variations in the shade of some colors. Its engineers suggest changing a key component in each press. The new component will cost $70 more than the old one. In the next year, however, SpeedPrint expects that with the new component it will (1) save 14,000 hours of rework, (2) save 850 hours of customer support, (3) move 225 fewer loads, (4) save 8,000 hours of warranty repairs, and (5) sell an additional 140 printing presses, for a total contribution margin of $1,680,000. SpeedPrint believes that even as it improves quality, it will not be able to save any of the fixed costs of re- work or repair. SpeedPrint uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Should SpeedPrint change to the new component? Show your calculations
Transcribed Image Text:Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells
18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as
follows:
Variable Cost
Fixed Cost
Total Cost
$79
$115
$194
Rework cost per hour
Repair costs
Customer support cost per hour
Transportation cost per load
Warranty repair cost per hour
35
55
90
350
115
465
89
150
239
SpeedPrint's current presses have a quality problem that causes variations in the shade of some colors. Its
engineers suggest changing a key component in each press. The new component will cost $70 more than
the old one. In the next year, however, SpeedPrint expects that with the new component it will (1) save 14,000
hours of rework, (2) save 850 hours of customer support, (3) move 225 fewer loads, (4) save 8,000 hours of
warranty repairs, and (5) sell an additional 140 printing presses, for a total contribution margin of $1,680,000.
SpeedPrint believes that even as it improves quality, it will not be able to save any of the fixed costs of re-
work or repair. SpeedPrint uses a 1-year time horizon for this decision because it plans to introduce a new
press at the end of the year.
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