Southern Environmental Consulting (SEC), Inc., designs plans and specifications for asbestos abatement (removal) projects in public, private, and government buildings. Currently, SEC must conduct an air test before allowing the occupancy of a building after the asbestos has been removed. SEC subcontracts air-test samples to a laboratory for analysis by transmission electron microscopy (TEM). To offset the cost of TEM analysis, SEC charges its clients $100 more than the subcontractor's fee. The only expenses in this system are the costs of shipping the air-test samples to the subcontractor and the labor involved in shipping the samples. With the growth of the business, SEC must consider either continuing to subcontract the TEM analysis to outside companies or developing its own TEM laboratory. Because of the passage of the Asbestos Hazard Emergency Response Act (AHERA) by the U.S. Congress, SEC expects about 1,000 air-sample testings per year over eight years. The firm's MARR is known to be 15%.
• Subcontract option. The client is charged $400 per sample, which is $100 above the subcontracting fee of $300. Labor expenses are $1,500 per year, and shipping expenses are estimated to be $0.50 per sample.
• TEM purchase option. The purchase and installation cost for the TEM is $415,000. The equipment would last for eight years, at which time it should have no salvage value. The design and renovation cost is estimated to be $9,500. The client is charged $300 per sample based on the current market price. One full-time manager and two part-time technicians are needed to operate the laboratory. Their combined annual salaries will be $50,000. Material required to operate the lab includes carbon rods, copper grids, filter equipment, and acetone. The costs of these materials are estimated at $6,000 per year. Utility costs, operating and maintenance costs, and the indirect labor needed to maintain the lab are estimated at $18,000 per year. The extra income-tax expenses would be $20,000.
(a) Determine the cost of an air-sample test by the TEM laboratory (in-house).
(b) What is the required number of air samples per year to make the two options equivalent?