Question

10) Baby Doll Shop manufactures wooden parts for dollhouses. The worker is paid $8.10 an hour and, using a handsaw, can produce a year's required production (1600 parts) in just eight 40- hour weeks. That is, the worker averages five parts per hour when working by hand. The shop is considering purchasing a power band saw with associated fixtures, to improve the productivity of this operation. Three models of power saw could be purchased: 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 Labour per hour $20.00 Catego Model A Model B 15 By Hand Model C 20 Production rate (parts/hour) Labour hours required (hours/year) Annual labour cost (@S20/hour) Annual power cost Initial investment Salvage value Service life (years) 10 320 160 107.00 80 S1,600 $600 $7,500 $750 20 S6,400 $3,200 S2,140 $500 $2,500 S5,000 $500 20 $400 $250 20 Assume that MARR+ 10%. Are there enough savings to purchase any of the power band saws? Which model is most economical, based on the rate-of-return principle? (Assume that any effect of income tax has been already considered in the dollar estimates.) (Source: This problem is adapted with the permission of Professor Peter Jackson of Comell University.)

Answer 1

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