The time has come to evaluate cost justify a new piece of eq

The time has come to evaluate (cost justify) a new piece of equipment for our production line. Your mission is to determine whether.or not to purchase replacement equipment based upon the numbers given below. Existing Equipment: Depreciation Cost Per Year 0- (fully depreciated) . Maintenance Cost $13,000 per year Operator Labor 2 people per shift, $13.50 per hour, 2080 hours worked per person, 2 shifts of operation 8 hours each . Grand Total Overtime Hours 333 per year . Employee Benefits : 40% of all wages . NRG Consumption $73 per operating day

Solution

Existing Equipment Proposed Equipment Particulars Units Rate Cost Units Rate Cost Depreciation per year 1 0 0 1 30000 30000 Maintenance cost 1 13000 13000 1 12000 12000 Operator labor 8320 13.5 112320 4160 13.5 56160 Overtime 333 20.25 6743 0 20.25 0 Wages(Overtime + operating Labor) 119063 56160 Benefits 119063 40% 47625 56160 40% 22464 NRG 260 73 18980 260 21 5460 Total Cost(Wages+benefits+NRG+Maintenance cost+ depreciation) 198668 126084 Depreciation= 240000/8years= $30000 Labor hours for existing equipment=2080*2*2=8320 Labor hours for proposed equipment=2080*2=4160 Overtime rate= 13.5*150%= 20.25 Operating days= 2080/8hours= 260 days Replacement cost= $126084 Existing equipment cost= $198668 Difference= $198668-$126084= $72584 The existing equipment should be replaced as the cost is higher than the proposed equipment.