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

Question

Joselyn Valentine

Business

2 October, 10:57

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

+4

Answers (2)

Know the Answer?

Kiki · Answer 1

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.