In the previous problem, suppose that the machine will be operated three shifts, or 6000 hr/yr, instead of 2000 hr/yr. Note the effect of increased machine utilization on the hourly rate compared to the rate determined in the previous problem.
Previous problem
In the operation of a certain production machine, one worker is required at a direct labor rate = $10/hr. Applicable labor factory overhead rate = 50%. Capital investment in the system = $250,000, expected service life = 10 years, no salvage value at the end of that period, and the applicable machine factory overhead rate = 30%. The work cell will operate 2000 hr/yr. Use a rate of return of 25% to determine the appropriate hourly rate for this work cell.