Question

A company can manufacture a product using hand tools. Tools will cost $1,000, and the manufacturing cost per unit will be $1.50. As an alternative, an automated system will cost $15,000 with a manufacturing cost per unit of $0.50. If the anticipated annual volume is 5,000 units and interest is neglected, the payback period (yrs) to buy the automated system rather than the hand tool method is most nearly:
A. 2.8
B. 3.6
C. 15.0
D. never

Answer 1

Answer:

A) 2.8

Explanation:

Answer 2

Answer:

A.2.8

Explanation:

guess in order to break even, the two alternatives has toequal so:

t=time (year):

so:

first choice

$1500 -fixed

$1.50 per unit which equal to $1.50*5000=$7500 per year

alternative

$15,000 -fixed

$0.50 per unit which equals to $0.50*5000=$2500 per year

so:

t=2.8 years.