Elon Motors produces electric automobiles. In recent years, they have been making all components of the cars, excluding the batteries for each vehicle. The company's leadership team has been considering the ways to reduce the cost of producing its cars. The leadership team considered various options and believes Elon Motors could reduce the cost of each car if it produces the car batteries instead of purchasing$$ from the current vendor, Avari Battery Company.

Currently, the cost of each battery is $$325$ per unit. Elon Motors feels that it could greatly reduce the cost if the production team makes each battery. To produce these batteries, the company will need to purchase specialized equipment. Cost of the new equipment is$$ $$1,570,000$ with salvage value of $$70,000$ and a useful life of $10$ years.

Currently, Elon Motors purchases $3,000$ batteries per year, and$$ expects that the production will remain the same for the coming $10-$year period. To make$$ batteries, Elon Motors has provided$$ below the relevant data about the proposed project.

$*$ Purchase of direct materials at a cost of $$125$ per battery produced.

$*$ Employing$$ three production workers to make the batteries. Each worker likely works for $2,080$ hours per year and makes $$25$ per hour. In addition, health benefits will amount to $20\%$ of the workers' annual wages.

$*$ The variable manufacturing overhead costs are estimated to be $$25$ per unit.

$*$ Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.

$*$ Cost of capital $($hurdle rate$)$ has been determined to be $10\%$ for all new projects, and the current tax rate of $30\%$ is anticipated to remain unchanged.

$*$ The pricing for the company's products as well as number of units sold will not be affected by this decision.

$*$ Elon Motors uses straight$-$line method to depreciate the equipment.$$

Cost Breakdown $($not sure if fully correct$)$

$$

$$ Current Battery Purchase Price: $$325$ per unit

$$ New Equipment Cost:$$$$1,570,000$

$$ Equipment Salvage Value:$$$$70,000$

$$ Equipment Useful Life: $10$ years

$$ Annual Battery Production$/$Purchase Needs: $3,000$ units

$$ Direct Material Cost per battery: $$125$ per unit

$$ Health Benefits: $20\%-52,000*3=156,000*20\%=31,200$

$$ Labor Cost per Employee $(3)$: $$52,000$ per year $(2080$ hours $*$ $$25/$hour$)$

$$ Variable Manufacturing Overhead Costs: $$25$ per unit

$$ Rate of Return: $10\%$

$$ Tax Rate: $30\%$

$$ Straight$-$Line Depreciation $$ The annual depreciation expense

Annual Depreciation Expense $=($Cost of Equipment $-$ Salvage Value$)/$ Useful Life

Annual Depreciation Expense $=($$$1,570,000-$ $$70,000)/10$ years

Annual Depreciation Expense $=$ $$150,000$ per year

$$

Data:

Cost of new equipment $1,570,000$

Expected life of equipment in years $10$

Salvage Value $70,000$

Life Production $?$

Annual production or purchase needs $3,000$

Number of workers needed $3$

Annual hours to be worked per employee $2080$

Earnings per hour for employees $25$

Health Benefits $-\%$ of Wages $20\%$

Cost of Direct Materials $125$

Variable Manufacturing Overhead Costs $25$

Unit Cost to Purchase Batteries $325$

Required rate of return $10\%$

Tax rate $30\%$

Not sure if correct Need help Make Purchase

Cost to Produce

Annual cost of direct material:

Need $-$ Cost direct material for of $2,500$ Batteries $125*2500312,500$

Annual cost of direct labor for new employees:

Wages $2080*25*3156,000$

Health benefits $156000*3\%31,200$

Total wage and benefits $156000+31200187,200$

Other variable production costs $3000*2575,000$

Total annual production costs $?$

Annual cost to purchase batteries $?$