A Manufacturing Firm Is Trying to Decide If It Should

question 39

Essay

A manufacturing firm is trying to decide if it should purchase an automated assembly line. The firm currently has employees completing the assembly portion of its production line. The workers are very efficient; a single worker can produce 5 assembled products per hour. An average worker earns $42.50 per eight-hour day. The automated assembly line can produce 2000 assembled products in eight hours. The company estimates that the costs associated with the automated assemble line total $250 per hour.
a. Should the company use the automated assembly line? Why or why not?
b. The manufacturer of the assembly line is anticipating an increase in the price of its product. What would be the maximum hourly capital cost that you would be willing to incur?

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Definitions:

FOB Destination

A shipping term that means the seller retains the risk of loss or damage to goods until they are delivered to the buyer's specified location.

Merchandise Inventory

Goods that a retailer or wholesaler purchases to sell to customers, held as an asset on the balance sheet.

Work in Process

Refers to partially finished goods that are still in the production process at the end of an accounting period.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, often used in calculating the cost of inventory or the average cost of capital.