The Fence Company is setting up a new production line to create top rails. The r

ID: 1206850 • Letter: T

Question

The Fence Company is setting up a new production line to create top rails. The relevant data for two alternatives are shown below.

PART A: Based on MARR of 8%, determine the annual rate of production for which the alternatives are equally economical.

PART B: If it is estimated that production will be 300 top rails per year what will be the total annual cost?

Flow Line Manufacturing Cell Installed Cost $15,000 $10,000 Expected Life 5 Years 5 Years Salvage Value $0 $0 Variable cost per top rail $6 $7

n= 5 i=0.08 for both the alternatives

Part A Let x be annual rate of production

15000(A/P,i,n) + 6x = 10000(A/P,i,n) + 7x

3757 - 2505 = x

So x = 1252

Part B

Annual cost of alternative FL = 15000(A/P,i,n) + 6*300 = 3757+1800 = $5557

Annual cost of alternative MC = 10000(A/P,i,n) + 7*300 = 2505+2100 = $4605

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