Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 48

Relevant Range PhotoGraphicImages, Inc. (PGI) is an international supplier of graphic and photo images that are used in the publishing business and by a variety of firms that need graphic images for their annual reports, sales brochures, and other documents. PGI purchases the rights to these images from other sources, including photographers, publishers, and graphic artists. PGI then pays the provider of the image a royalty based on the number of times the image will be used (for example, the number of sales brochures that will be printed with that image). PGI operates in 16 countries, with small marketing and customer service offices located in each country. PGI's operating headquarters is located in Austin, Texas, where company management is located as well as a significant portion of the computer operations that are the backbone of the company's operations. Because of increased demand, PGI has just opened an operations center in Paris. All European and U.K. area business is now handled out of Paris, while the rest of the world's demand is handled out of Austin. The company foresees that it may be necessary to locate another operations center in China, if Asian demand continues to grow.
The computer operations at each of the operating locations consist of both large and small computer servers where the images are stored, the company website is maintained, and the business records are kept. There is capacity at each location to increase the number of servers as demand increases, though the capacity for expansion is limited in the current facility in Austin.
Required
1. Assuming PGI's output volume is measured by the number of customer orders, give some examples of the volume-based costs of this company.
2. How does the relevant range apply within this company
3. How does the growth of PGI globally affect the firm's total costs (consider also foreign currency fluctuations)