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3. Guardian is a national manufacturing company of home health care appliances. It is faced with a make-or-buy decision. A newly engineered lift can be
3. Guardian is a national manufacturing company of home health care appliances. It is faced with a make-or-buy decision. A newly engineered lift can be installed in a car trunk to raise and lower a wheelchair. The steel arm of the lift can be purchased internationally for $3.50 per unit or it can be made in-house. If manufactured on site, two machines will be required. The first machine is estimated to cost $18,000, have a life of six years, and have a $2,000 salvage value. The second machine is estimated to cost $12,000, have a life of four years, and have a -$500 carry-away cost at the end of its life. The first machine will also require an overhaul after three years of operation. The cost of the overhaul will be $3,000. The annual operating cost for the first machine is expected to be $6,000 per year. The annual operating cost for the second machine is expected to be $5,000 per year. A total of four operators will be required for the two machines at a rate of $12.50 per hour per operator. Under normal operating conditions, the operators and two machines can produce parts sufficient to manufacture 1,000 units. Guardian will use a MARR of 15% per year for the analysis. a. Compute the number of units to manufacture each year to justify the in-house (make) option. b. Compute the maximum capital expenditure justifiable to purchase the first machine, assuming all other estimates for the two machines are as stated. Assume the company plans to produce 10,000 units per year
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