a. What is the total variable cost saving per freezer?

b. What is the total investment cost per year if all pieces of equipment are expected to last 10 years (use straight-line depreciation)?

c. How many freezers per year should the Guelph plant produce in order to break even in the clear-view packaging conversion?

W. C. Wood was the largest freezer manufacturer in Canada. It had two plants in Guelph, Ontario; one in the United States; and another in Mexico. In the early 2000s, some appliance manufacturers, such as Whirlpool, had converted from using cardboard box packaging to using plastic stretch wrap with corner padding ( called clear-view packaging). The VP of manufacturing was wondering whether to also convert. The damage warranty rate for cardboard box packaging (1-3 percent depending on the type of freezer) was expected to remain the same with clear-view packaging. For sinlplicity, we consider only one of the Guelph plants with one line.

Whereas a cardboard box required two workers to box an appliance, the clear-view packaging would be automated. Labour and material costs would be reduced by $0.50 and $1.50 per unit, respectively. However, electricity costs would increase by $10,000 per year. The stretch wrap equipment by MSK Covertech cost $130,000. The fitting of corner posts on each freezer required another machine, which cost $140,000. In addition, all lift truck arms had to be converted to clamp type at a total cost of $30,000.