The semi-automated machine costs $1,500,000, and it has a 7-year MACRS recovery period.salvage value is $0,machine output is 175 finished parts per hour

The normal manufacturing operation runs 8 hours per shift per day. Initial production would begin with one shift, 5 days a week.Each working year has 50 weeks (250 regular working days)

The total labor cost is $50 for each regular time hour that the machine operates and $65 for overtime.

The production operation can operate a maximum of 8 extra hours/week, if needed to meet the demand without adding an extra shift

Other required information:

Corporate MARR 12% (after tax)

Cost of borrowing 9%

Effective tax rate 35%

Maintenance cost 12% of raw material cost

Overhead cost 2% of raw material cost

\fCase 29 New Fangled Manufacturing Unit Cost Machine Cost $8.00 $1,500,000.00 Maintenance cost Over head Cost 12% of raw material 2% of raw material (Acquisition Cost - Salvage Value) / No of years MACRS recovery period Salvage Value Machine Output Overtime Working days Regular shif Second Shif Labour cost 7-year $0.00 175 1.6 250 8 8 $50.00 Depreciation per year Over time labour cost $65.00 per hour Year 1 2 3 4 5 6 7 8 9 Production Volume(1000's) $195 $275 $385 $550 $625 $695 $630 $550 $295 Total Normal available hours 8*5*50 2000 hrs/year Total Normal production per year 175*2000 350000 units/year Year 1 2 3 4 Production Volume(1000's) $195,000 $275,000 $385,000 $550,000 Available hours 2000 2000 2000 2000 parts/hr hrs/day per year hrs/day hrs/day per hour labour hours required 1114.29 1571.43 2200.00 3142.86 5 6 7 8 9 $625,000 $695,000 $630,000 $550,000 $295,000 2000 2000 2000 2000 2000 3571.43 3971.43 3600.00 3142.86 1685.71 Year 1 2 3 4 5 6 7 8 9 Production Volume(1000's) $195,000 $275,000 $385,000 $550,000 $625,000 $695,000 $630,000 $550,000 $295,000 Available hours 2000 2000 2000 2000 2000 2000 2000 2000 2000 labour hours required 1114.29 1571.43 2200.00 3142.86 3571.43 3971.43 3600.00 3142.86 1685.71 45 Defecit hours Over time hours -885.71 n/a -428.57 n/a 200.00 200 1142.86 400 Second shif hours n/a n/a n/a 742.86 Normal labour cost $55,714.29 $78,571.43 $100,000.00 $100,000.00 Overtime labour cost $0.00 $0.00 $13,000.00 $26,000.00 1571.43 1971.43 1600.00 1142.86 -314.29 n/a Component Cost $1,560,000 $2,200,000 $3,080,000 $4,400,000 $5,000,000 $5,560,000 $5,040,000 $4,400,000 $2,360,000 400 400 400 400 Normal Labour cost 55714.29 78571.43 100000.00 100000.00 100000.00 100000.00 100000.00 100000.00 84285.71 1171.43 1571.43 1200.00 742.86 n/a Maintenance cost $187,200 $264,000 $369,600 $528,000 $600,000 $667,200 $604,800 $528,000 $283,200 $100,000.00 $100,000.00 $100,000.00 $100,000.00 $84,285.71 $26,000.00 $26,000.00 $26,000.00 $26,000.00 $0.00 Over head Cost Depreciation Cost $31,200 $214,285.71 $44,000 $214,285.71 $61,600 $214,285.71 $88,000 $214,285.71 $100,000 $214,285.71 $111,200 $214,285.71 $100,800 $214,285.71 $88,000 $47,200 C Second shif labour cost $0.00 $0.00 $0.00 $37,142.86 Total Labour Cost $55,714.29 $78,571.43 $113,000.00 $163,142.86 $58,571.43 $78,571.43 $60,000.00 $37,142.86 $0.00 $184,571.43 $204,571.43 $186,000.00 $163,142.86 $84,285.71 Cost of borrowing $135,000.00 $135,000.00 $135,000.00 $135,000.00 $135,000.00 $135,000.00 $135,000.00 Total Cost $2,183,400.00 $2,935,857.14 $3,960,485.71 $5,465,285.71 $6,149,285.71 $6,787,685.71 $6,194,885.71 Selling price x x x x x x x Selling price 195000x 275000x 385000x 550000x 625000x 695000x 630000x tax 35% $68,250 $96,250 $134,750 $192,500 $218,750 $243,250 $220,500 SP afer tax 68250x 96250x 134750x 192500x 218750x 243250x 220500x Case 29 New Fangled Manufacturing Unit Cost Machine Cost $8.00 $1,500,000.00 Maintenance cost Over head Cost 12% of raw material 2% of raw material (Acquisition Cost - Salvage Value) / No of years MACRS recovery period Salvage Value Machine Output Overtime Working days Regular shif Second Shif Labour cost 7-year $0.00 175 1.6 250 8 8 $50.00 Depreciation per year Over time labour cost $65.00 per hour Year 1 2 3 4 5 6 7 8 9 Production Volume(1000's) $195 $275 $385 $550 $625 $695 $630 $550 $295 Total Normal available hours 8*5*50 2000 hrs/year Total Normal production per year 175*2000 350000 units/year Year 1 2 3 4 Production Volume(1000's) $195,000 $275,000 $385,000 $550,000 Available hours 2000 2000 2000 2000 parts/hr hrs/day per year hrs/day hrs/day per hour labour hours required 1114.29 1571.43 2200.00 3142.86 5 6 7 8 9 $625,000 $695,000 $630,000 $550,000 $295,000 2000 2000 2000 2000 2000 3571.43 3971.43 3600.00 3142.86 1685.71 Year 1 2 3 4 5 6 7 8 9 Production Volume(1000's) $195,000 $275,000 $385,000 $550,000 $625,000 $695,000 $630,000 $550,000 $295,000 Available hours 2000 2000 2000 2000 2000 2000 2000 2000 2000 labour hours required 1114.29 1571.43 2200.00 3142.86 3571.43 3971.43 3600.00 3142.86 1685.71 45 Defecit hours Over time hours -885.71 n/a -428.57 n/a 200.00 200 1142.86 400 Second shif hours n/a n/a n/a 742.86 Normal labour cost $55,714.29 $78,571.43 $100,000.00 $100,000.00 Overtime labour cost $0.00 $0.00 $13,000.00 $26,000.00 1571.43 1971.43 1600.00 1142.86 -314.29 n/a Component Cost $1,560,000 $2,200,000 $3,080,000 $4,400,000 $5,000,000 $5,560,000 $5,040,000 $4,400,000 $2,360,000 400 400 400 400 Normal Labour cost 55714.29 78571.43 100000.00 100000.00 100000.00 100000.00 100000.00 100000.00 84285.71 1171.43 1571.43 1200.00 742.86 n/a Maintenance cost $187,200 $264,000 $369,600 $528,000 $600,000 $667,200 $604,800 $528,000 $283,200 $100,000.00 $100,000.00 $100,000.00 $100,000.00 $84,285.71 $26,000.00 $26,000.00 $26,000.00 $26,000.00 $0.00 Over head Cost Depreciation Cost $31,200 $214,285.71 $44,000 $214,285.71 $61,600 $214,285.71 $88,000 $214,285.71 $100,000 $214,285.71 $111,200 $214,285.71 $100,800 $214,285.71 $88,000 $47,200 C Second shif labour cost $0.00 $0.00 $0.00 $37,142.86 Total Labour Cost $55,714.29 $78,571.43 $113,000.00 $163,142.86 $58,571.43 $78,571.43 $60,000.00 $37,142.86 $0.00 $184,571.43 $204,571.43 $186,000.00 $163,142.86 $84,285.71 Cost of borrowing $135,000.00 $135,000.00 $135,000.00 $135,000.00 $135,000.00 $135,000.00 $135,000.00 Total Cost $2,183,400.00 $2,935,857.14 $3,960,485.71 $5,465,285.71 $6,149,285.71 $6,787,685.71 $6,194,885.71