WinCo Electric Co produces 1,000 dryer motors each week. WimCo shuts the plant d

Question

WinCo Electric Co produces 1,000 dryer motors each week. WimCo shuts the plant down two weeks each year, so production is only accomplished fifty weeks each year. The manufactureing-line equipment costs 250,000 and will remain productive for five yeas. The annual labor cost is 140,000. management has the option of acquiring different equipment for 325,000 with an operating life of seven yeas. Labor costs for the new system would be reduced 17,500 per year. Read this problem very closely. Pay very close attention to the varied time dimensions when computing answers. Assuming all other factors remained costant, which productin system (5 year or 7 year) should management choose? 7 year or 5 year

Explanation / Answer

Manufacturing Line Equipment

Cost of asset 250000

labour cost 140000 per year for 5 years

Total cost in five years 250000+140000*5 = 950000

cost per year 950000/5 = 190000

Different equipment

Cost of asset 350000

labour cost 122500 per year for 7 years

Total cost in five years 250000+122500*7 = 1182500

cost per year 1182500/7 = 168928

2nd option is better

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