A plant is going to buy a new machine. A productivity analysis is being done for

Question

A plant is going to buy a new machine. A productivity analysis is being done for the purchase. The current machine produces 20,000 parts per year. It needs 2500 labor hrs per year at a labor rate of $40 per hr and S80,000 capital cost per year. After automation, it is estimated to take 1500 labor hrs and $200,000 capital cost per year. It will then produce 30000 parts per year.Labor rate increases to S4S/Hr Consider only labor and capital inputs. Ignore all other inputs. Find the labor, capital and total factor productivity now and after automation. Would you recommend the automation project? Why and why not? 1. Do all calculations on Excel

Explanation / Answer

Current Machine Automated Machine Capital Cost $80,000 $2,00,000 Labor Cost $1,00,000 (2500*40) $67,500 (1500*45) Total Cost $1,80,000 $2,67,500 No. of Parts 20000 30000 Cost/Unit $9 $8.92 Yes I would recommend the Automated proposal as the cost/unit is lower as compared to current Machine.

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