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ABC Inc. produces washing machines, dryers, and dishwashers. Because of increasing competition, Jasnav is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for $6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another ten years. The automated system would also have a useful life of ten years.
The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department:
Sales per year (units) 100,000Selling price $300
Costs per unit:
Direct materials 80Direct labor 90Variable overhead 20Direct fixed overhead 40
Other information:
Required -
Problem 1: Do you recommend that ABC purchase the automated system. Show detailed calculations.
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