Question
Determine if the following is a good idea: Your company has an existing manufacturing program for a stable product line. The process is relatively stable
Determine if the following is a good idea: Your company has an existing manufacturing program for a stable product line. The process is relatively stable but you think there is room for improvement. Based on what you have learned from the gifted faculty at the University, you boldly state that, for $1,200,000 in capital equipment plus another $200,000 for R&D, you could improve 2 processes steps 15% each and that this would recover the capital equipment expense in less than 12 months. Is this possible? The expected monthly volumes are:
Month1 - 12,000 Month2 - 12,000 Month3 - 12,000 Month4 - 13,000 Month5 - 13,000 Month6 - 13,000 Month7 - 12,000 Month8 - 12,000 Month9 - 12,000 Month10 - 13,000 Month11 - 13,000 Month12 - 13,000 You will finance everything except R&D, which has its own internal funding. Your companys policy for profit is 45% on sell price. What are you going to recommend? Depending on your results, are there any other alternatives for you to consider? Provide a comprehensive solution to prove or disprove your assertion. Heres some more information and advice which you may find useful: Financing is 9.0%annual rate; you will be financing over 12 months for simplicity Manufacturing equipment, such as what you are recommending, typically has a useful life of 5years E = mc2 Your company policy for equipment is to depreciate to zero
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