How much impact might microprocessors have on production costs? Assume that variable overhead represents the same percentage of costs as fixed overhead. Find the net present value if the microprocessors cost $25,000 and their installation runs another $5,000. Assume a 10% margin.

MINI CASE

As Norm St. Laurent, operations manager for Oilwell Cable Company, pulled his Bronco 4x4 onto Kansas Interstate 70, he heard on the CB about the traffic jam ahead of him due to icy road conditions. Although the traffic was moving some, Norm decided to get off at the eastern offramp for Lawrence, rather than the more direct western offramp, to save time. While waiting for the offramp to come up, Norms mind drifted back to his discussion with Bill Russell, the general manager, on the previous day. Norm had been contemplating adding microprocessors to their rubber mixing equipment in order to save manual adjustments on these machines. This would improve throughput and reduce costs simultaneously, though without displacing any employees. Based on the data Norm had seen, it appeared that the microprocessors could cut the production time by 1 percent and reduce scrap from the current rate of 1 percent down to one-half of 1 percent.