\"Engineering Ecomony\" Question Assume that you have a company and need to eval
ID: 1197758 • Letter: #
Question
"Engineering Ecomony" Question
Assume that you have a company and need to evaluate two alternatives, an automatic machine (AM) and a manual machine (MM). Capital investment for these AM and MM are $23,000 and $8,000, respectively. The salvage values for AM and MM are $4,000 and $0, respectively. The AM has a predicted life of 10 years and only one employee will be required to operate this AM at a rate of $12 hourly. Estimated annual costs are $3,500 for the AM. Expected output from AM is 8 tons hourly.
On the other side, we need to have three employees to operate the MM at a rate of $8 hourly for each employee, and estimated useful life of MM is 5 years. Estimated annual costs are $1,500 for the MM. Expected output from MM is 6 tons hourly. If we assume that MARR is 10% yearly for AM and MM, what is the amount of output per year we need to have to choose the AM as the best alternative?
*There is no information missing, apparently profit per ton is not needed*
Explanation / Answer
The cost saving in AM due to lower cost of labour is 2.5 per unit, however ther is a higher depreciation and annual cost. The AM will be beneficial if the benefit from the labour saving is atleast able to compensate for the higher fixed costs. Thus the number of units to compensate for the same will be 2300/2.5 = 920
AM MM Diff A Investment 23,000 8,000 B Life of Asset 10 5 C Labour needed 1 3 D Hourly labour rate 12 8 E Production per hour 8 6 F Annual cost 3,500 1,500 G=C*D/E Labour cost/Unit 1.5 4 -2.5 H Depreciation 1,900 1,600 I=F+H Total Fixed cost 5,400 3,100 2,300Related Questions
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