Question

Strategic Decision Making for CVP Analysis

Rusty Thompson operates a real estate service business that provides rental management services, real estate appraisal, and a variety of other services. Rusty is successful because of his knowledge and experience and the reliability of his service which has gained him the trust of his customers, many of whom have been with him for several years. One of the key items in his office is a printer that prints copies of photos from his digital camera. The photos are used in appraisals and in other services. His copier was relatively inexpensive to buy ($99) but the ink cartridges are expensive—depending on the capacity of the cartridge, the cost is from $37.50 for a capacity of 500 copies to $80 for a capacity for 2,000 copies. Rusty prints about 1,000 photos a month.  

• What is the problem?
• What are some strategic issues surrounding the problem?
• What are the alternative actions?
• What action should Rusty take and why?

Answer 1

The key issue us the operating cost of the printer which is almost half of the printer cost per month. This causes Rusty to spend $40 per month on copies. The High operating cost offsets the lower initial cost of printer, the manufacturer of which is earning from consumables rather than from sale of device itself.

The feasibility if this option depends on many factors such as cost per copy if outsourced, quality of current printed copies vs. Those available from outside and ease of availability of other option.

Rusty, after considering all these options, can either get the copies done from outside, purchase a new printer that is low on operating costs or continue with current option and look for cheaper refills.

The right action will depend on the factors mentioned above relating to quality, cost, Continuity and availability of new option.