An Automobile manufacturer is considering change in an assembly line that should
ID: 385446 • Letter: A
Question
An Automobile manufacturer is considering change in an assembly line that should save money due to reduction in labor and material cost. the change involves the installation of four new robots that will automatically install windshields. the cost of the four robots including installation and initial programming, is 400,000 current practice is to amortize the initial cost of robots over two year on a straight line basis. The process engineer estimate that one full time technician will be needed to monitor, maintain and reprogram the robots on an ongoing basis This person will cost approximately 60,000 per year. Currently, the company uses four full-time employees on this job and each makes about 52,000 per year. One of these employees is a material handler and this person will still be needed with the new process, to complicate matters, the process engineer estimates that the robot will apply the windshield sealing material in a manner that will result in a savings of 0.25 per windshield installed. How many automobiles need to be produced over the next two year to make the new robots an attractive investment? Due to the relatively short horizon, do not consider the tine value of money 0 9Explanation / Answer
Interest and cost of capital is not given, further no other information is given regarding depreciation, so this problem could be solved by applying simple cost and return analysis as follows:
Cost of Labor under old system: 52,000 X 4 = 208,000 per year
Total Cost labor under new system = 60,000 (Maintenance engineer) + 52,000 (Material handling staff)
= 112,000 per year
Savings under head of labor for first year = 208,000- 112,000 = 96,000 every year
Hence, saving under head of labor for 1st and 2nd year = 96,000 X 2 = 192,000
Cost of installation of new robot system (One time) = 400,000
Net cost after factoring savings under labor = 400,000 - 192,000
= 208,000
In order to recover cost in two years under SLM with 0.25 saving per unit windshield the company should manufacture at least = 208,000 / 0.25 = 832,000 units
Hence, the automobile manufacturer is required to manufacture more than 832,000 units in two years assuming each automobile uses exactly one windshield to make this now robot assisted system attractive.
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