TH THoughts or
TH
2
A consultant has suggested installing solar panels to reduce electricity costs by 40%.
The solar panels would cost $250,000. The panels are not as “powerful” and would
reduce the factory’s total number of batches
by five
batches (or 150 hides). This will
free up 5% of the Drying Manager’s time while adding $1,600 per year of direct labor to
maintain the panels. The CEO has asked for your sage advice; proceed or not with the
solar panels? Provide a recommendation, yes or no?
Proceed with solar panels:
Circle
Yes
or
No
Using #30 units per batch …..
Benefit
Save .40 ($3765)
$1,506 per batch
Status Quo deploys 56 batches
#56 ($1,506) =
$84,336 per year
Less incremental annual costs
($1,600)
$ 82,736 (JK’s answer)
TH
2
added a more precise view.
“if we have a savings of $1,506 per batch in electricity,
then, the new batch cost is $14,856 (16,362 – 1,506),
then, this changes the
hide break even per batch
,
then, the calculation is 14,856 / $800 = 18.57 which is 19 hides
then, with solar panels installed, we would use the remaining 20 hides to actually initiate
the 57
th
batch
the value of the 57
th
batch is $800 x 20 hides
16,000
Less
(14,856)
Net value
$1,144
(TH adjustment)
Then the net annual benefit is 83,880 ( $1,144 + $82,736)
The payback calculation becomes
250,000/ 83,880 =
2.98
years
Note we do not “save on” 57 batches because the 57
th
batch is a function of the solar
panels. What the reduced electricity per batch does create is a new break-even and
now justifies the production of the 57
th
batch.
We need to include the net benefit of that 57
th
batch!
Thanks TH
….hmm maybe NFAY is not valid….
