Problem solving methos must be used: Please make the andwer clear and easy to re

Question

Problem solving methos must be used:

Please make the andwer clear and easy to read, type or good hand written.
2.(28 points) An existing assembly line utilizes 30 laborers and sik maintenance technicians. You are considering the following two upgrade options regarding this assembly operation. For each option: Money may be borrowed for any purchase at 4.10% APR. Laborers costs in salary plus an additional 29% in fringe benefits. Maintenance technicians cost $4200 per month in salary plus an additional 35% in fringe benefits. Calculatethe returnon investment(ROI)for each option using monthly values 2400 per month Option A) Purchase hard automation that will be custom built for the assembly line and hasa life expectancy of eight years. The total cost of this system is $4,540,000. This option will reduce the total number of laborers to twelve and will only require three maintenance technicians. It has a scrap value of $60,000 at the end of its life. Option B) Purchase soft automation, which consists of twelve programmable robotic cells from Fanuc. Each robotic cell will cost $196,000 and will have a life of five years. The total salvage value of all robotic cells at the end of the five-year period is $48,000. This option will require fifteen laborers, two maintenance technicians, and an additional service contract costing $6000 per month Option A-Hard Automation: Total M(costs): Total M(savings: Return on Investment (to two decimals): 4 points) 4 points) (3 points) Option B-Soft Automation: Total M(costs): Total M(savings): Return on Investment (to two decimals): 4 points) (4 points) (3 points) Based on ROl, which option should you purchase? A (Hard) B (Soft) (3 points) No (3 points) If your company's minimum ROI is 40%, should you recommend the purchase to your manager? Yes

Explanation / Answer

Answer:

1. Option A:    Hard Automation.

M savings = $5,553,728.

M cost    = $4,540,000.

Calculating for 8 years, we will get total Savings (M savings-M cost) = 1,013,728

Return on Investment (RoI) = 1,013,728/(4,540,000*8*12) = 0.23% per month.

2. Option B:    Soft Automation

M savings at the end of 5 years = $3,795,020.

M cost    = $ 196,000.

Total Savings at the end of 5 years = $3,599,020.

Return on Investment = 3,599,020/(196,000*12*8) = 19.13% per month.

3. Soft Automation is better than Hard Automation in terms of RoI.

4. We shall recommend Soft Automation to the Purchase Manager as it has 229.53% annual return.

S.No. Initial Cost Salvage Value Interest Cost Labor Savings Maintenance Technician Savings Total Savings 1. ($4,540,000) 60,000 ($186,140) $3096 per month $5,670 per month Total 3,096*18=$55,728 per month 5,670*3 = $ 17,010 per month 0.23% per month

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