The Crimson Press Curriculum Center

First Page and the Assignment Questions:
Fred Anderson, chairman of the Department of Accounting in the School of Management at Commonwealth University was contemplating the problem presented to him by Professor Marty Preston, one of his department’s faculty members. Professor Anderson and other department heads were being strongly encouraged by the School’s associate dean to have their faculty use the School’s copy center for the reproduction of research papers and other copying needs. Yet, the cost of making 100 copies of one of Professor Preston’s research papers would be $20 more using the School’s copy center than it would be if the work were done at Handycop, a private copy center located about one block from the department’s offices.

   This was not the first time that Professor Anderson had been apprised of this sort of problem. According to his informal calculations, instances like this happened several times a week, totaling several thousand dollars a year. Inasmuch as he was being asked to keep his department’s expenses under control, he realized that he needed to develop a policy that was satisfactory to both him and the associate dean.

Data

   Based on Professor Anderson’s request, the School’s copy center had prepared a detailed budget for Professor Preston’s job. It is shown below:

   Direct materials                  $ 90
   Direct labor                              25
   Variable overhead   $ 2
   Fixed overhead         17       19
   Total costs                            $134
   Markup                                    13
   Proposed price                        147

   Professor Anderson knew that the School’s Copy Center had the capacity to produce about 300,000 copies a week, but was operating at a level of only about 250,000 a week.   Handycop did work that was both of equal quality and speed as the School’s copy center. Its bid price for Professor Preston’s job was $127.

Assignment

1.   What is the lowest price that the School’s Copy Center should charge for this job? Why?

2.   What is the highest price that the department of accounting should pay for Professor Preston’s job? Why?

3.   What should Professor Anderson propose to the Associate Dean concerning pricing for the services of the Copy Center?