Question

12) A manufacturing firm utilizes a manual machine to make a product. Theproduction rate is 125 parts/hr. This current method uses three operators at a labor wagerate of $18/hr. The manual machine’s capital operation cost (including cost of electricity)is $34/hr. The firm is considering replacing the manual machine with a programmableautomation work cell. The new cell only requires one operator, but it has a capital cost(including cost of electricity) of $95/hr. The production rate of the machine is 225 parts/hr.Perform a combined productivity analysis to determine if the firm should purchase theautomated work cell.

13) Referring to the manual manufacturing method information given in reviewquestion 12, calculate the total annual cost to produce 100,000 parts per year. Note that theannual cost of maintenance for the machine is $16,000. Additionally, the raw material costis $2.50 per part

14) A new automated method is being developed to replace the manual methoddescribed in review questions 12 and 13. The new method has a production rate of 245parts/hr, requires only one operator, and has a capital cost of $65.50/hour. Additionally,the new method decreases material waste, thereby reducing raw material costs to $1.00/ part. Because of machine sophistication, yearly maintenance costs will increase to $26,000 per year. Perform a productivity analysis to compare the two alternatives if annual production is 100,000 parts/yr. Is the proposed method more productive?Calculate the quantity breakeven point. What is total annual cost savings if the proposed method is used?

Answer 1

Ans.12. Productivity analysis to determine if the firm should go for automated cell or not;

1. Cost analysis under Manual machine

                Units of production =125parts/hr

                  Labour wage (for 3 labours) = 3*$18/hr = $54/hr

                 Capital operation cost = $34/hr

                 Total cost of production under manual machine = labour wage + capital operation cost

                                                                                               = $ 54/hr + $34/hr      

                                                                                             = $ 88/hr

                  Average Total cost per unit = Total cost / units of production

                                                                 = $ 88 / 125 parts (both are on hour basis)

                                                                 = $ 0.724 per unit

1. Cost analysis under Programmed automated work cell

                   Units of production =225parts/hr

                   Labour wage (for 1 labour) = $18/hr

                  Capital operation cost =$95/hr

                  Total cost of production under automated work cell = labour wage + capital operation cost

                                                                                               = $ 18/hr + $95/hr      

                                                                                             = $ 113/hr

                  Average Total cost per unit = Total cost / units of production

                                                                 = $ 113 / 225 parts (both are on hour basis)

                                                                 = $ 0.5022 per unit

Based on the above productivity analysis, the firm should purchase automated work cell, as the cost of production per part under automated cell is $0.5022, which is less than the cost of production under manual machine ie, $0.724.

Ans.13. Calculation of total cost of 100,000 parts per year under manual machine;

                  Units of production =125parts/hr

                  Calculation of hours required to produce 100,000 part per year = parts per year/ parts per hour

                                                                                                                                   = 100,000 parts/125 parts

                                                                                                                                   = 800 hr

                  Labour wage (for 3 labours) = 3*$18/hr = $54/hr

1. Total labour wage for 800hr = 800*$54

                                                                            = $43200

                  Capital operation cost = $34/hr

1. Total capital cost for 800hr = 800*$34

                                                                        = $27200

                  Annual cost of maintenance for the machine = $16000

                  Raw material cost = $2.5/ part

1. Total Raw material cost for 100000 = $2.5*100000

                                                                                           =$250,000

                Therefore, total cost of 100,000 parts = a + b+ c

                                                                                     =43200+ 27200+250000

                                                                                     =$320,400