Alpha Electronics can purchase a needed service for $160 per unit. The same serv
ID: 2777976 • Letter: A
Question
Alpha Electronics can purchase a needed service for $160 per unit. The same service can be provided by equipment that costs $320,000 and that will have a salvage value of 0 at the end of 10 years. Annual operating costs for the equipment will be $7,000 per year plus $25 per unit produced. MARR is 12%/year.
a) Whats the annual worth if the expected production is 90units/year? 510units/year?
b)Determine the breakeven value for annual production that will return MARR on the investment in the new equipment.
Explanation / Answer
(a) Annual worth at a production of 90 units per year =
Total fixed cost 3,27,000 + variable cost 2250 = $3,29,250.
MARR is 12% thus it wil be 3,29,250 x 12/100 = $,39,510.
Thus worth will be 3,29,250 + 39,510 = $3,68,750.
Annual worth at a production of 510 units per year =
Total fixed cost 3,27,000 + variable cost 12,750 = $3,39,750.
MARR is 12% thus it wil be 3,39,750 x 12/100 = $,40,770.
Thus worth will be 3,39,750 + 40,770 = $3,80,520.
(B) Break Even Value of Annual Production =
Fixed Cost / (Price of Unit – Variable cost of Unit.)
3,27,000 / ( 160 – 25) = 3,27,000 / 135
= 2422.22 units annual production approx.
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