Quality improvement, relevant costs and relevant revenues. (25 minutes)
Braganza manufactures and sells 20 000 copiers each year. The variable and fixed costs of reworking and repairing copiers are as follows:
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Variable costs
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Fixed costs
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Total costs
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Rework costs per copier
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€1600
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€2400
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€4000
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Repair costs per copier
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|
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|
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Customer-support costs
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80
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120
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200
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Transportation costs for
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repair parts
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180
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60
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240
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Warranty repair costs
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1800
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2600
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4400
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Braganza's engineers are currently working to solve the problem of copies being too light or too dark. They propose changing the lens of the copier. The new lens will cost €50 more than the old lens. Each copier uses one lens. Braganza uses a one-year time horizon for this decision, since it plans to introduce a new copier at the end of the year. Braganza believes that even as it improves quality, it will not be able to save any of the fixed costs of rework or repair.
By changing the lens, Braganza expects that it will (1) rework 300 fewer copiers, (2) repair 200 fewer copiers and (3) sell 100 additional copiers. Braganza's unit contribution margin on its existing copier is €6000.
Required
1. What are the additional costs of choosing the new lens?
2. What are the additional benefits of choosing the new lens?
3. Should Braganza use the new lens?