Question: Joe Austin is opening a laundry and dry cleaning store in northern Wisconsin. He is going to operate the store 250 days per year. Joe is considering a couple of options for the machine that he will use to press the shirts. One press (Press A) will cost $12,100 and with this press he estimates that it will cost $0.323 to press a shirt. The second press (Press B) he is considering will cost $15,400 to purchase and it will cost $0.244 to press a shirt. Regardless of the press he purchases, he will charge a customer $1.10 per shirt. Joe will continue to operate 250 days per year. For the following analyses, Joe will ignore taxes and depreciation. He wants to recover the cost of the press he buys during the first year.

1. Over what range of shirts per year would each of the presses be preferred over the other press? Show your work.
2. Considering only Press A, Joe now wonders how many shirts per year he would need to press if he wants to recover the cost of Press A during the first year and he cuts his price to $1.01 per shirt. How many shirts per year would Joe need to press to break-even? Show your work.
3. Suppose Joe has decided that Press B will provide a higher quality finished shirt so he will raise the price to $1.15 per shirt if he buys that press. It also turns out that Press B has a higher capacity than Press A. Using Press A, 80 shirts per day can be pressed, while using Press B 85 shirts per day can be pressed. He believes the demand will exceed the capacity of either press. Considering the original information and this additional information, which press should Joe select if he wants the better bottom line performance?
4. It turns out that Press A is no longer available to purchase. As an alternative to purchasing Press B, Joe is considering outsourcing the pressing operation to a third party. What is the maximum price per shirt that he would be willing to pay the third party and be indifferent between this option and Press B using this information for Press B: $15,400 price for the press, $0.244 cost to press the shirt, $1.15 per shirt price, 85 shirts per day, and 250 days per year? Assume that he will charge the customer $1.12 per shirt if he decides to outsource the pressing operation and this can also provide 85 shirts per day. Assume 85 shirts per day will be pressed for either option.

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