Reference no: EM132068352

A news clipping service is considering modernization.Rather than manually clipping and photocopying articlesof interest and mailing them to its clients, employeeselectronically input stories from most widely circulatedpublications into a database. Each new issue issearched for key words, such as a client's company name,competitors' names, type of business, and the company'sproducts, services, and officers. When matchesoccur, affected clients are instantly notified via an onlinenetwork. If the story is of interest, it is electronicallytransmitted, so the client often has the story and canprepare comments for follow-up interviews before thepublication hits the street. The manual process has fixedcosts of $400,000 per year and variable costs of $6.20 perclipping mailed. The price charged the client is $8.00 perclipping. The computerized process has fixed costs of$1,300,000 per year and variable costs of $2.25 per storyelectronically transmitted to the client.a. If the same price is charged for either process, what isthe annual volume beyond which the automated processis more attractive?b. The present volume of business is 225,000 clippingsper year. Many of the clippings sent with the currentprocess are not of interest to the client or are multiplecopies of the same story appearing in severalpublications. The news clipping service believes thatby improving service and by lowering the price to$4.00 per story, modernization will increase volume to900,000 stories transmitted per year. Should the clippingservice modernize?c. If the forecasted increase in business is toooptimistic, at what volume will the new process(with the $4.00 price) break even?