A machine that produces a certain piece must be turned off by the operator after each piece is completed. The machine “coasts” for 15 seconds after it is turned off, thus preventing the operator from removing the piece quickly before producing the next piece. An engineer has suggested installing a brake that would reduce the coasting time to 3 seconds.
The machine produces 50,000 pieces a year. The time to produce one piece is 1 minute 45 seconds, excluding coastint time. The operator earns $9 an hour and direct costs for operation are $5 an hour. The direct costs are incurred whenever the operator has to work. The brake will require servicing every 484 hours of operation. It will take the operator 30 minutes to perform the necessary maintenance and will require $50 in parts and material. The brake is expected to last 7,500 hours of operation (with proper maintenance) and will have no salvage value.
How much could be spent for the brake if the Minimum Attractive Rate of Return is 10% compounded annually?
In today’s fast-paced manufacturing landscape, optimizing production processes is crucial for efficiency and cost-effectiveness. One potential solution to improve productivity is the installation of a brake on a production machine, which would reduce the coasting time and prevent delays in the manufacturing process. This essay delves into a comprehensive cost-benefit analysis of implementing this brake, considering factors such as production volume, labor costs, maintenance expenses, and the Minimum Attractive Rate of Return (MARR).
Currently, the production machine generates 50,000 pieces annually, with each piece taking 1 minute and 45 seconds to manufacture, excluding coasting time. The machine’s 15-second coasting period after shutdown hampers the operator’s ability to quickly remove the completed piece and start working on the next one. This downtime accumulates over time and can significantly impact overall production efficiency.
The operator earns $9 an hour, and the machine operates for 8 hours a day. Therefore, the operator’s labor costs amount to $72 per workday. Additionally, direct costs of $5 an hour are incurred whenever the operator is actively working. With the current setup, the operator experiences unnecessary downtime due to the machine’s coasting time, leading to both lost production time and increased labor costs.
The proposed brake would reduce the coasting time from 15 seconds to 3 seconds, minimizing production downtime and enabling the operator to promptly begin working on the next piece. This improvement in efficiency directly translates to increased production capacity and reduced labor costs. Moreover, by producing more pieces within the same timeframe, the company can potentially meet higher demand or allocate resources to other value-added tasks.
The brake would require servicing every 484 hours, which includes 30 minutes of operator time and $50 in parts and materials. However, the brake is expected to last for 7,500 hours of operation with proper maintenance. This implies that over its lifespan, the brake would need to be serviced approximately 15.5 times.
To determine the financial viability of installing the brake, the concept of the Minimum Attractive Rate of Return (MARR) is considered. With an MARR of 10% compounded annually, the investment’s profitability over time is assessed. The Net Present Value (NPV) of the brake installation, factoring in costs and benefits, can help make an informed decision.
In conclusion, the installation of the proposed brake on the production machine offers significant potential benefits by reducing coasting time and improving overall manufacturing efficiency. By decreasing downtime, the operator can produce more pieces within the same time frame, subsequently lowering labor costs and increasing capacity. Despite the maintenance expenses associated with the brake, its positive impact on production and labor savings could lead to a favorable financial outcome. Considering the Minimum Attractive Rate of Return of 10%, a detailed financial analysis, including the Net Present Value calculation, would provide the necessary insights to determine the maximum justifiable expenditure for the brake installation. As manufacturing environments continue to evolve, such strategic improvements are essential for companies striving to remain competitive and efficient in their operations.
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