In the Dorben Company a materials handling operation in the warehouse is being done by hand labor.
Question:
In the Dorben Company a materials handling operation in the warehouse is being done by hand labor. Annual disbursements for this labor and for closely related expenses (social security, accident insurance, and other fringe benefits), are $8,200. The methods analyst is considering a proposal to build certain equipment to reduce this labor cost. The first cost of this equipment will be $15,000. It is estimated that the equipment will reduce annual disbursements for labor and labor extras to $3,300. Annual payments for power, maintenance, and property taxes and insurance are estimated to be $400, $1,100, and $300, respectively. The need for this particular operation is anticipated to continue for 10 years. Because the equipment is specially designed for the particular purpose, it will have no salvage value. It is assumed that the annual disbursements for labor, power, and maintenance will be uniform throughout the 10 years. The minimum rate of return before income taxes is 10 percent. Based on annual cost comparison, should the company proceed with the new material handling equipment?
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Niebels Methods, Standards and Work Design
ISBN: 978-0073376318
13th edition
Authors: Andris Freivalds, Benjamin Niebel