Assignment #1 Cost Justification

Your mission is to determine whether or not to purchase replacement equipment based upon the numbers given below.

Existing Equipment:

• Depreciation Cost Per Year = -0- (fully depreciated)

• Maintenance Cost = $13,000 per year

• Operator Labor = 2 people per shift, $13.50 per hour, 2080 hours worked per person, 2 shifts of operation @ 8 hours each

• Grand Total Overtime Hours = 333 per year

• Employee Benefits = 40% of all wages

• NRG Consumption = $73 per operating day

Note: Overtime hours are paid at a rate of 150% of regular pay for hours over 8 per shift.

Proposed Replacement Equipment:

• Depreciation Cost Per Year of Proposed Equipment = Purchase price of $240,000; economic life of 8 years; straight line

• Maintenance Cost = $12,000 per year

• Operator Labor = 1 person per shift, $13.50 per hour, 2080 hours worked per person, 2 shifts of operation @ 8 hours each

• Grand Total Overtime Hours = -0-

DKI rev Jul 2020 copyright

• Employee benefits = 40% of all wages

• NRG Consumption = $31 per operating day

Answer the following:

1. What is the total cost difference, per year, for operating the replacement equipment versus the existing equipment? Solve for Xs listed below.

• Proposed Replacement Equipment Annual Cost = X

• Existing Equipment Annual Cost = X

• Difference in Cost per Year = X

2. What other consideration must you give to making the decision to keep or replace existing equipment?

Can you please do it by hand and not by computer?