- A Carpentry Shop Manufactures Wooden Parts For Portable Storage The Shop Pays Its Worker 8 10 An Hour Using A Handsaw 1 (212 KiB) Viewed 37 times
A carpentry shop manufactures wooden parts for portable storage. The shop pays its worker $8.10 an hour using a handsaw. The worker can produce the year's required production (1600 parts) in just eight 40-hour weeks and the worker averages five parts per hour when working by hand. The shop is considering the purchase of a power band saw with associated fixtures, to improve the productivity of this operation. Three models of power saw are considered: Model A (the economy version), Model B (the high-powered version), and Model C (the deluxe high-end version). The major operating difference between these models is their speed of operation. The investment costs, including the required fixtures and other operating characteristics, are summarized as follows: Category By Hand Economy H. Powered Deluxe Production rate(parts/hour) 5 10 15 20 Labor hours/year 320 160 107 80 Annual Labor Cost $ 2,592 $1,296 $867 $648 $400 $420 $480 $5,000 ----- $7,000 $8,500 Annual power cost Initial investment Salvage value Service life (years) $500 $700 $800 10 10 10
Use the IRR and incremental criterions to evaluate all the options including (By Hand) and find out which model is the most economical if MARR = 10%.