7/25/2019 The Cartridge Dilemma

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The Cartridge Dilemma

St. Agatha Company manufactures laser printers. Government agencies haveadvised the company that for all new products it will have to provide for

recycling of used toner cartridges.

A study has determined that St. Agatha Company has three options. It candesign a printer with cartridges that the customer rells with toner, eliminatingthe need to recycle the cartridges. It can design cartridges that it will recoverand rell with toner. Or it can design cartridges that it will recover, crush, andsell the resulting plastic as scrap.

Planners at the company are considering the design of a cartridge for a newprinter. he company e!pects that customers will use a"out #, $$,$$$ cartridgesa year during the ve%year manufacturing life of the new printer. After that, the

company e!pects that cartridge use will fall at the rate of &, $$,$$$ per year.he cost of ma'ing a cartridge is (#$. Assume that the company)s "efore ta!cost of capital is *&+.

ar'eting sta- estimates that printer sales will su-er if it o-ers a cartridge thatcustomers have to rell. herefore they plan to cut the printer prices to maintainvolume. he net e-ect on prot is e!pected to "e a"out (#,$$$,$$$ per yearduring the ve year manufacturing life of the printer. nder this alternative, thecompany would price the replacement toner to "rea'even and would ma'e &, /$,$$$ cartridges in each of the ve year manufacturing life of the new printer withthe "alance of use in the rst ve years and the last two years accounted for "y

rells.

he mar'eting sta- estimated that for every *$$ cartridges used, only 0$ will "ereturned. 1eturns are made in the year that the cartridge is used. he companyis e!pected to pay a (*/ landll fee at the end of the product)s lifetime for everycartridge disposed of.

he cost to clean and rell a cartridge is (&$. nder this alternative, thecompany would ma'e /,$$,$$$ cartridges in each of the rst two years and relyon recovered cartridges after that.

If the company chooses the crushing alternative, it must purchase a plasticrecovery machine at the start of the pro2ect. he cost of machine is (/,$$$,$$$and it would "e useless when the product is a"andoned. he recycled plastic sand other material can "e sold to yield (30 per cartridge. Ignore the e-ects ofta!es in answering 4uestions.

If the company)s o"2ective is to minimi5e the ta'e%"ac' cost, which of thefollowing alternative should it pursue6

*. a'e a cartridge that customer can rell, O1&. a'e a cartridge that is recycled, O1

3. a'e a cartridge that is recovered, crushed, and remanufactured6

7/25/2019 The Cartridge Dilemma

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