Question 2:

a) An Engineering component can be produced on either a standard milling machine or a numerically controlled one. The following information is known Milling M/C Tooling cost 100 Cost of special tools Material cost/component 3.00 Operating labour cost 20.00 / hour Cycle time / component 10 minutes Setting up labour cost 25.00 / hour Setting up time 1 hour Machine overheads 300% of operating labour cost NC Machine 100 300 3.00 11.00 / hour 2 minute 25.00 / hour 3 hours 1000% of operating labour cost i. Construct the break-even chart, Calculate the break-even quantity (3 Marks) (15 Marks) ii. b) The purchase price of a new piece of equipment is 28000, 14000 to be paid immediately and 14000 in one years' time. The increase in the net earnings expected due to this new equipment is expected to be 7000 per year for 6 years, at the end of the 6th year, it is intended to sell it for scrap and the scrap value is estimated to be 2000. Using a discounting rate of 12%, calculate the Net Present Value of this investment and assess its viability. (7 Marks) [Total 25 Marks]