In manufacturing its main product, the Bernard Corporation uses a
process that requires two employees to manually control certain equipment. For
several years, a sales representative of an equipment manufacturer has urged the vice
president of production at the Bernard Corporation to purchase automated control
equipment that would replace the two employees. The vice president has resisted
this, although the firm’s controller has urged that the equipment be purchased. This
equipment is actually a computer system that will monitor the sensitive machines
needed to manufacture the Bernard Corporation’s cutting tools. The computer will
also indicate defects in the product that are too small for a human operator to notice.
Early in 19X1, one of the employees involved announced that he planned to retire in
July and the production manager wishes to move the second employee to another
job. The controller thinks this is a good time to buy the automated control equipment.
The data given here have been accumulated by the controller to support his
argument.

The equipment would have an estimated life of 10 years. The expected volume
and sales price per unit of output would be unchanged.
1. Based solely on the measurable data given, should the company purchase the
automated control equipment? Show all calculations.
2. ‘What other factors seem to be the most important in the decision? List some that
might cause you to reverse your decision and discuss why this might happen.

Transcribed Image Text:

Present wages of two employees Payroll taxes Fringe benefits Additional costs when employees are absent from work for vacation, illness, etc. (average) Variable costs related to timekeeping, payroll, etc. Amount per Year $30,000 2,800 4,800 3,600 600 The automated control equipment would cost $200,000. Other estimated costs related to the equipment follow: Property taxes Interest on money to be borrowed to purchase equipment (average) Insurance on equipment Amount per Year $ 2,400 18,000 500 Repairs and maintenance Power 1,000 600