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:

Equity Method

An accounting technique used for recording investments in associate companies where the investment gives the investor significant influence over the company.

Consolidated Balance Sheet

A financial statement that presents the assets, liabilities, and shareholder equity of a parent company and its subsidiaries as one entity.

Sales Revenue

The total income received from selling goods or services before any expenses are subtracted.

Other Revenues

Income from activities that are not part of a company's core business operations.