BPO Services is in the business of digitizing information from forms that are fi
ID: 1194448 • Letter: B
Question
BPO Services is in the business of digitizing information from forms that are filled out by hand. In 2006, a big client gave BPO a distribution of the firms that it digitized in-house last year, and BPO estimated how much it would cost to digitize each form.
A- Compute the average cost of digitizing a form.
B-The client agreed to pay the average cost computed for each form that BPO processed, but BPO lost money on the contract. How much did BPO lose, on the average, for each form that it processed?
Form Type Mix of Forms Forms Cost A 25% $0.25 B 25% $0.10 C 25% $0.15 D 25% $0.50Explanation / Answer
(a) Average cost is the probability-weighted average cost in this case.
Average cost = 25% x $0.25 + 25% x $0.1 + 25% x $0.15 + 25% x $0.50
= 25% x $(0.25 + 0.1 + 0.15 + 0.50) = 25% x $1
= $0.25
(b) BPO lost money on type D whose actual cost > average cost. So, Loss = Actual cost - Average cost
Loss per form = $(0.50 - 0.25) = $0.25
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