Answer:
The maximum amount the company should pay for the new machine is $1,567,500 if it wants to break even by the end of the first year
Explanation:
Number of article (N) = 380.000
Time for each articles (T) = 95 minutes = 1.583 hours
Direct Labour Cost (D1) = $9 per hour
Overhead Cost (O1)= $7.50 per direct labour hour
Total cost for labour(C)= D1 + O1= $16.50 per hour
Selling price of articles(S1) = $80 per article
- Cost of Production (P1)= N * T * C
= 380,000 * 1.583 * 16.50
=$9,925,410
-Total amount got by selling (S) = N * S1
=380,000 * 80
=$30,400,000
Profit in this process (R1) = S - P1
=30,400,000 - 9,925,410
=$20,474,590 per year
-Time for each article with new machines (T)= 95 - 15 = 80 minute = 1.333 hour
-Cost for production (P2)= N * T * C
=380,000 * 1.333 * 16.50
=$8,357,910
Profit in this Process(R2)= S-P2=
=30,400,000 - 8,357,910
=$22,042,090 per year
Net Profit gain by new machine = R2 - R1
=$22,042,090 - $20,474,590
=$1,567,500 per year
The maximum amount the company should pay for the new machine is $1,567,500 if it wants to break even by the end of the first year
