S-3.2 Baby Doll Shop currently manufactures wooden parts for dollhouses. Its sole worker is paid $8.10...

 

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S-3.2 Baby Doll Shop currently manufactures wooden parts for dollhouses. Its sole worker is paid $8.10 an hour and, using a handsaw, can produce a year's required production (1,600 parts) in just eight weeks of 40 hours per week. That is, 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 in order to improve the productivity of this operation. Three models of power saw could be purchased: Model A (economy version), Model B (high-powered version), and Model C (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 Production rate (parts/hour) Labor hours required (hours/year) By Hand Model A Model B Madel C 5 10 15 20 320 160 107 80 Annual labor cost (@ $8.10/hour) $2,592 Annual power cost $1,296 $867 $648 $400 $420 $480 Initial investment $4,000 $6,000 $7,000 Salvage value Service life (years) $400 $600 $700 20 20 20 Assume that MARR = 10%. Are there enough potential savings to make it economical to purchase any of the power band saws? Which model is most economical according to the rate-of-return principle? S-3.2 Baby Doll Shop currently manufactures wooden parts for dollhouses. Its sole worker is paid $8.10 an hour and, using a handsaw, can produce a year's required production (1,600 parts) in just eight weeks of 40 hours per week. That is, 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 in order to improve the productivity of this operation. Three models of power saw could be purchased: Model A (economy version), Model B (high-powered version), and Model C (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 Production rate (parts/hour) Labor hours required (hours/year) By Hand Model A Model B Madel C 5 10 15 20 320 160 107 80 Annual labor cost (@ $8.10/hour) $2,592 Annual power cost $1,296 $867 $648 $400 $420 $480 Initial investment $4,000 $6,000 $7,000 Salvage value Service life (years) $400 $600 $700 20 20 20 Assume that MARR = 10%. Are there enough potential savings to make it economical to purchase any of the power band saws? Which model is most economical according to the rate-of-return principle?

Answer rating: 100% (QA)

A1 B C D E F G H I J W X Y Z 2 3 Incremental Cash analysis needs to be done to decide which model is more profitable 4 5 By Hand 6 Year 0 1 2 3 4 5 6 19 20 7 Annual Labour Cost 259200 259200 259200 25... View the full answer