Colgate Printing Co

question 13

Essay

Colgate Printing Co. (CPC) has the book binding contract for the Ralph Brown library. The library pays $25 per
book to CPC. CPC binds 1,000 books every year for the library. Ralph Brown library is considering the option of
binding the books in-house in the basement of the library complex. In order to do this, the library would have
to invest in a binding machine and other printing equipment at a cost of $100,000. The useful life of the machine
is 12 years, at the end of which time, the machine is estimated to have a salvage value of $12,000. The annual
operating and maintenance costs of the machine are estimated to be $10,000.
(a) Assuming an interest rate of 6%, what is the cost of binding per book for the in-house option?
(b) What annual volume of books in need of binding would make both the options (in-house versus
subcontracting) equivalent?

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Definitions:

Visual Alerts

Alerts that use visual signals like flashing lights to notify users of conditions or events.

Pericardium

The fibrous sac that surrounds the heart and the roots of the great blood vessels, providing protection and support.

Mediastinum

The central compartment of the thoracic cavity between the lungs, containing the heart, esophagus, trachea, and other structures.

Diaphragm

A major muscle involved in breathing, separating the thoracic cavity from the abdominal cavity.