One car manufacturer is considering using one of two systems for its windshield assembly line. The first is a robotic system that saves money by reducing labor and material costs. This robotic system will cost $400,000. The current practice is to recover this cost in the first two years. The system will require a full-time technician and a dedicated material handler. Full-time technicians spend $60,000 a year, while material carriers spend $52,000 a year. If the company chooses a manual system, it will require four full-time material handlers for an annual fee of $52,000. If a manual system is selected, the company will incur an additional charge of $0.50 for each windshield installed. (Hint: This is the savings mentioned in the first paragraph.) Assume that only one windshield is installed per car. 

a) How many cars do you need to produce in the next two years to make the manufacturer economically indistinguishable between the two systems? Ignore time value money and assume that the full cost of the robotic system will be recovered in the first two years.

b) Suppose the company will produce 9,000 windshields per month. In order to make the company indifferent between the two design solutions, how much must the robot design save per unit?

c) For manual design, the current price is $9.50 per unit, and the marketing team says it has 8,000 items per month. However, if the company reduces the price per unit by $0.25 and uses a robotic design, the demand will increase to 9,000 units per month. Additional information on robot design is provided in a) above. From these two options, which strategy should the company adopt? a) All other information provided in the section applies to this analysis. Show the work that supports your decision.  

 

Answer rating: 100% (QA)

a Assume point of indifference n Now 400000 60000 ... View the full answer