1. Exhibit 4 shows the calculation of the total operating cost and annual saving for year 1 (2010). Assume a 10% annual demand growth, 2% annual labor cost increase and 2% overhead cost increase. Compute the annual saving for year 3 (2012).
2. We note that with a 10% annual demand increase, the company would need to expand the capacity by purchasing additional machines. Compute the annual saving for year 5 (2014) .