A manually operated grinding machine costs $ 60,000. It will have a service life of 7 years with an anticipated salvage value of $ 5,000 at the end of its life. The machine will be used to produce one type of part at a rate of 25 parts/hour. The annual cost to maintain the machine is $ 3,000. The machine overhead rate is 25% (applicable to capital investment, maintenance, and salvage value of the equipment). Labor to run the machine costs $ 12.00/hour and the labor overhead is 30%. Suppose that an alternative to the manually operated production machine is available. The alternative is an automated CNC grinding machine, costing $125,000, but capable of a production rate of 50 parts/hour. The service life is 5 years with a salvage value of $ 15,000 at the end of that time. Annual maintenance will cost $ 10,000. One-third of one operator costing $ 21.00/hour will be required to run the machine. The overhead used for this machine is 35 % (applicable to capital investment, maintenance, and salvage value of the equipment) and the overhead for the labor is 20%. 

(a) Determine the break-even point for the automated and manual methods of production. How many hours/year will be needed to achieve the breakeven point for each of these machines? 

(b) If annual demand for these parts is expected to be 80,000 parts, which machine will you recommend for purchase?  (b) Determine the profit break-even point for the selected machine if the parts are sold for $ 1.30/part. What do you understand by the term ‘profit breakeven point’? For both machines, the interest rate/rate of return applicable is 20 %

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a The breakeven point for the automated machine is calculated as follows Fixed costs Contribution ma... View the full answer