(Cost benefit analysis) Alfred Carlson, plant manager at WEBOXALL Company, is investigating spoilage created by a machine that prints packing boxes for TVs and other large, fragile items. At the beginning of each production run, 50 boxes are misprinted either because of miscoloration or misalignment. These boxes must be destroyed. The variable production cost per box is $6.00. The machine averages 200 setups for production runs each year. A regulator is available that will correct the problem. Alfred is trying to decide whether to purchase the regulator.
a. At what cost for the regulator would the benefit of acquisition not exceed the cost? What other factors should Alfred consider in addition to the purchase price of the regulator?
b. If each setup produces an average of 500 boxes, what is the increased cost per good box that is caused by the spoiled units?
c. WEBOXALL Company runs 12 batches per year for Springtime Corporation, which makes very specialized equipment in limited quantities. Thus, each batch contains only 20 boxes. If WEBOXALL Company is passing its spoilage cost on to customers based on batch costs, might Springtime Corporation be willing to buy the regulator for WEBOXALL Company if the regulator costs $3,300? Justify your answer.
d. Why are the cost per box answers in parts (b) and (c) so different?