Question

Use Excel.

AEW-BE Currently, Apple buys Phone Screens from Samsung to manufacture their phones. The screens cost $420. You, an employee of Apple, have looked into buying a machine that will make the screens internally. The machine will cost $2.1 Million and it will take a robot (inital cost of $111,000) with a yearly maintenance cost of $6,800 and a full-time employee being paid $41,000 yearly to operate the machine. Making the screens in house will cost $240 per screen. There will be a yearly maintenance cost on the machine of $55,000 and a major maintenance overhaul in year 4 costing $100,000. Your company MARR is 6.2% and your project life is 8 years, what is the annual demand for screens that would allow the project to break even? What is the Annual Equivalent Cost of the process? Number of Screens per year to break even (Whole Number)

Answer 1

MAKE OR BUY					Present Value
Particulars	Cost	Present Value Factor @ 6.2% p.a	Amount(in $)		Year	Calculcations	Interest @6.2%
	A	B	C = A*B		1	1/(1.062)^1	0.9416
Machine Cost	2,100,000	1	2,100,000		2	1/(1.062)^2	0.8866
Robot Cost	111,000	1	111,000		3	1/(1.062)^3	0.8349
Robot Maintenance	6,800	6.1609	41,894.12		4	1/(1.062)^4	0.7861
Employee Cost	41,000	6.1609	252,596.90		5	1/(1.062)^5	0.7402
Machine yearly Maintenance	55,000	6.1609	338,849.50		6	1/(1.062)^6	0.6970
Machine overhaul @ year 4	100,000	0.7861	78,614.37		7	1/(1.062)^7	0.6563
					8	1/(1.062)^8	0.6180
							6.1609
		TOTAL	2,922,955
		Number of Years	8
Answer(a)		Average Equivalent Cost	365,369
Break even Point (in units) = Fixed cost /contribution per unit
Fixed cost or average equivalent cost = 365,369
Contribution per unit
Purchase from Samsung	420
Less: In house production cost	240
Contribution per unit	180
Break even Point (in units) = Fixed cost /contribution per unit
Break even Point (in units) = 365,369 / 180
Answer (b) Break even Point for number of screen per year (in units) = 2,030