Question

Currently, Apple buys Phone Screens from Samsung to manufacture their phones. The screens cost $267. You, an employee of Apple, have looked into buying a machine that will make the screens internally. The machine will cost $1.6 Million and it will take a robot (inital cost of $88,000) with a yearly maintenance cost of $5,500 and a full-time employee being paid $44,000 yearly to operate the machine. Making the screens in house will cost $140 per screen. There will be a yearly maintenance cost on the machine of $67,000 and a major maintenance overhaul in year 4 costing $130,000. Your company MARR is 3.7% and your project life is 8 years, what is the annual demand for screens that would allow the project to break even? What is the Annual Equivalent Cost of the process ? Number of Screens per year to break even (Whole Number)

Answer 1

Detailed answer is attached below with picture

Summary of Answer :

Annual Equivalent Cost

$        324,324

Break Even Point (Units)

2,554

Particulars Year Machine Cost Robot Cost Robot Maintainance Employee Cost Machine Yearly Maintainance Machine Overhaul@year 4 Total Make or Buy Present Value Cost Factor @3.7%p.a Amount ($) C=A*B $ 1,600,000 $ 1,600,000 $ 88,000 $ 88,000 $ 5,500 6.8169 $ 37,493 $ 44,000 6.8169 $ 299,945 $ 67,000 6.8169 $ 456,735 $ 130,000 0.8647 $ 112,416 $ 2,594,589 Number of Years Annual Equivalent Cost $ 324,324 Present Value Interest Calculation @3.7% 1 1/(1.037) 0.9643 2 1/(1.037) 0.9299 31/(1.037)3 0.8967 41/(1.037) 0.8647 5 1/(1.037) 0.8339 61/(1.037) 0.8041 71/(1.037) 0.7754 8|1/(1.037) 0.7478 6.8169 Total Number of screens per year to break even Formula : Break Even Point (Units) = Fixed Cost / Contribution Fixed Cost or Annual Equivalent Cost | $ 324,324 Calculation of Contribution Purchase from Samsung 2671 Less : In house production cost 140 Contribution 127 Annual Equivalent Cost $ Contribution $ Break Even Point (Units) 324,324 127 2,554