Baby Doll Shop manufactures wooden parts for dollhouses. A worker is paid $8.10 an hour and using a handsaw can produce a year's required production (1,600 parts) in just eight 40-hour weeks. That is, the worker averages five parts per hour when working by hand. The shop is considering purchasing a power band saw with associated fixtures to improve the productivity of this operation. Three models of power saw could be purchased: Model A (the economy version), model B (the high-powered version), and model C (the deluxe high-end version). The major operating difference between these models is their speed of operation. The investment costs, including the required fixtures and other operating characteristics, are summarized in Table P7.55.
Assume that MARR = 10%. Are there enough savings to purchase any of the power band saws? Which model is most economical, based on the rate-of-re-turn principle? (Assume that any effect of income tax has been already considered in the dollar estimates.) (Source: This problem is adapted with the permission of Professor Peter Jackson of Cornell University.)
TABLE P7.55.

Transcribed Image Text:

By Hand Model A Model B Model C Category Production rate (parts/hour) Labor hours required (hours/year) Annual labor cost (@ $8.10/hour) $2.592 $1,296 Annual power cost ($) Initial investment (S) Salvage value (S) Service life (years) 15 107 $867 420 6,000 600 20 20 80 $648 480 7,000 700 20 10 320 160 400 4,000 400 20