An automobile manufacturer is considering one of two systems for its windshield assembly line. The first is a robotic system that should save money due to a reduction in labor and material cost. This robotic system will cost $400,000. Current practice is to recover this cost over the first two years. One full-time technician and one full-time material handler will be needed with this system. The full-time technician costs $60,000 per year and the material handler costs $52,000 per year.
If the company selects the manual system, it will need four full-time material handlers at a cost of $52,000 each per year. If the manual system is selected, the company will incur additional costs of $0.50 per windshield installed. (Hint: This is the savings referred to in the first paragraph.)
Assume that only one windshield is installed per automobile.
a) How many automobiles are needed to be produced over the next two years to make the robotic system an attractive investment? Ignore the time value money and assume that the entire cost of the robotic system will be recovered during the first two years
b) Suppose that the company is going to produce 9,000 windshields per month. How much would the new design have to save per unit in order for the company to be indifferent between the two design options?
c) For the current design and with the current price of $9.50 per unit, the marketing group has said that there is a demand for 8,000 units per month. However, if the company were to drop the price by $0.25 per unit and adopt the new design, the demand would increase to 9,000 units per month. The other information for the new design is provided in a) above. Looking at these two options, which strategy should the company adopt? All of the other information provided in part a) applies in this analysis. Show your work supporting your decision.