Printer Cost-Benefit Analysis for Micro Dings Micro Dings Insurance is a local company that…
Printer Cost-Benefit Analysis for Micro Dings
Micro Dings Insurance is a local company that writes automobile insurance policies. Several years ago, Micro Dings purchased five black-and-white ink-jet printers for their agents to use to print policies, renewals, and billings for their customers. The printers are fairly good quality (600 dots per inch), but they are slow (10 pages per minute) and the ink cartridges are expensive. Each printer prints about 6000 pages per month and uses one black ink cartridge per month, which costs $30 at a local office supply store.
The printers have started to reach the end of their useful life, and last year, Micro Dings spent $1000 on printer repairs. Because of the frequency of repairs, the lead agent at Micro Dings, Rick Berry, has been approached by a sales representative for the computer shop that repairs their current printers. The sales rep has recommended the company invest in replacement printers. He suggested a model of higher quality (1200 dots per inch) color printers that sell for $400 each. The new printers can easily accommodate the page volume per month and are considerably faster at 25 pages per minute. Because of the faster speed, the sales rep recommended that Micro Dings purchase three new printers to replace the five current printers. Black ink cartridges for the new printers cost $25 each and are expected to print about 10,000 pages, so they should last about one month. Rick Berry thinks their use of color for the insurance policies would be limited. Color cartridges for the new printers cost $30 each, but would probably last for six months before they needed to be replaced.
Rick sees additional advantages of the new printers, including the following:
· The ability to print the Micro Dings Insurance Company logo in color would enhance the company’s image in its communications with customers and prospects.
· The ability to print in color could be used to highlight important information on policies and billing forms.
· The speed of the new printers means agents would wait less time for lengthy policies and renewals to print.
· The print quality of the new printers should be better than the old printers.
· Micro Dings can save on printer repair bills, at least for the first few years.
· The new printer cartridges will last longer and need to be replaced less frequently
But Rick also has some concerns about purchasing new printers:
· The agents will have to share three printers instead of five.
· The reliability of the new printers is described as good in reviews, but printers aren’t usually tested at the high rate of use that Micro Dings would require (10,000 pages per month).
Rick Berry would like you to prepare a spreadsheet that analyzes the costs and benefits of the new printers compared with the old ones. Use the guidelines and categories for cost-benefit analyses described in the chapter. (Hint: This case includes a lot of numeric data and other information, some of which may not be directly relevant to a cost-benefit analysis. Part of your task as an analyst is to determine which information is relevant.) Answer the following questions:
· Will any of the payoffs to the company (cost savings) occur in the first year?
· Is the payback period longer than one year?
· Do the cost savings justify the $1200 Micro Dings will pay for the new printers?
Write a brief cover memo to accompany your spreadsheet that communicates your conclusions to Rick as well as any assumptions you made when you prepared the cost-benefit spreadsheet.