Rylon Corporation is an assembler of electrical components. The company estimates that for the next year, the demand will be 800 units. The company is performing on an 80 percent learning curve. The company is considering purchasing some assembly machinery to accelerate the assembly time. Most assembly activities are 85-90 percent labor intensive. However, with the new machinery, the assembly activities will be only 25-45 percent labor intensive. If the company purchases and installs the new equipment, it will occur after the 200th unit is produced. Therefore, the remaining 600 units will be produced with the new equipment. The 200th unit will require 620 hours of assembly. However, the 201st unit will require only 400 hours of assembly but on a 90 percent learning curve.
a. Will the new machine shorten product assembly time for all 800 units and, if so, by how many hours?
b. If the company is burdened by $70 per hour, and the new equipment is depreciated over five years, what is the most money that the company should pay for the new equipment? What assumptions have you made?