Question

Comparison of two alternatives for breakeven An IE works in the automation department of a surgical equipment manufacturing company that produces specially ordered equipment for hospitals. To upgrade the quality of the assembly process of the camera used in laparoscopic surgery probes, two approaches are available: make and buy. The make alternative has an initial equipment cost of $175,000, a life of 5 years, a $25,000 salvage value, a processing cost of $3,000 per camera, and an M&O cost of $80,000. The buy alternative requires contracting the assembly operation externally at a cost of $6,750 per camera. If the MARR is 12% per year, how many cameras per year must be assembled to justify the make alternative?

Answer 1

Answer:

35 cameras

Explanation:

Initial equipment cost = $175,000

life span = 5 years

salvage value = $25,000

processing cost per camera = $3000

M and O cost = $80,000

cost of contracting assembly operation externally = $6,750 per camera

MARR = 12% per year

Determine the number of  cameras per year to be assembled

let number of camera = n

we will make use of the relation below

EUAC of make option = 175000*(A/P,12%,5) + 3000*n + 80000 - 25000*(A/F,12%,5)

= 175000 * 0.277410 +  3000*n + 80000 - 25000*0.157410

= 132482 + 3000 n

Hence the EUAC of the alternative

= 6750 * n

∴ 6750 n = 132482 + 3000 n

n = 132482 / 3750 = 35.33 ≈ 35 Alternative cameras must be assembled