Three methods can be used for producing heat sensors for high temperature furnaces. The interest rate for
Question:
Three methods can be used for producing heat sensors for high temperature furnaces. The interest rate for the economic evaluation is 10% per year.
Method A: Fixed cost of $140,000 per year
Production cost of $62 per part
Method B: Fixed cost of $210,000 per year
Production cost of $28 per part
Method C: Equipment first cost of $500,000
Life of 5 years
Salvage value of 25% of first cost
Production cost of $53 per part
(a) Determine the breakeven annual production rate between the two lowest-cost methods.
(b) Develop the spreadsheet graph of the annual cost for all three methods and estimate the breakeven production rate(s) from the graph.
(c) Use your spreadsheet and graph to determine the required annual fixed cost of method A that forces a breakeven between methods A and C at the rate of 2000 parts per year.
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Step by Step Answer:
a Fixed cost C FC C 500000AP105 025500000AF105 50000002638 02550000001638 111425 per year Method A h...View the full answer
