A machine shop has ten machines and employs 1 technician for each of the machines. Each machine produces 5,000 widgets a
Posted: Thu May 05, 2022 9:08 am
A machine shop has ten machines and employs 1 technician for
each of the machines. Each machine produces 5,000 widgets a year,
and each widget is sold for $80. Each technician is paid a salary
of $50,000 per year. The owner is thinking of replacing the ten
existing machines with eight improved machines which are capable of
producing 8,000 widgets per year each. These improved machines also
require one technician per machine and the existing technicians
could be trained to run the new machines. The new machines cost
$1.1 M each. It also requires an additional annual maintenance of
$8,000 per machine and a specialized annual training for each
technician that costs $4000 per technician per year. As an advisor
to the owner, would you support the decision based on the payback
period of the proposed action? What additional information would
you request to give the owner the best possible advice? (Owner will
be able to sell all additional widgets that will be produced by the
new machines, if purchased. He is willing to reduce the number of
technicians from ten to eight. The salvage value of the old
machines is negligible. No other expenses will change because of
the upgrade). If you are asked to do a cost benefit ratio for
the “decision to upgrade the machines” what additional information
would you need?
each of the machines. Each machine produces 5,000 widgets a year,
and each widget is sold for $80. Each technician is paid a salary
of $50,000 per year. The owner is thinking of replacing the ten
existing machines with eight improved machines which are capable of
producing 8,000 widgets per year each. These improved machines also
require one technician per machine and the existing technicians
could be trained to run the new machines. The new machines cost
$1.1 M each. It also requires an additional annual maintenance of
$8,000 per machine and a specialized annual training for each
technician that costs $4000 per technician per year. As an advisor
to the owner, would you support the decision based on the payback
period of the proposed action? What additional information would
you request to give the owner the best possible advice? (Owner will
be able to sell all additional widgets that will be produced by the
new machines, if purchased. He is willing to reduce the number of
technicians from ten to eight. The salvage value of the old
machines is negligible. No other expenses will change because of
the upgrade). If you are asked to do a cost benefit ratio for
the “decision to upgrade the machines” what additional information
would you need?