Scheduled production per 8 hour shift = 24,000 units
Labor Cost per 8 hour shift = $1800
Benefits per 8 hour shift = 38.5% of labor cost
Annual Production Forecast = 6,240,000 units
We are looking to purchase a piece of equipment that our Engineering Department has recommended. Engineering estimates the proposed equipment will reduce combined labor and benefit expenses by 8.5%. The additional annual operating cost for the proposed equipment, including depreciation, energy consumption, and maintenance, is estimated to be $55,000.
Using the background information and assumptions above, calculate the difference in the operating cost per year between the existing equipment and the proposed. Show your work.
Considering an investment of $50,000, what decision would you make regarding this piece of equipment and why?