You grow 200 acres of canning peaches every year. The average yield is 20 tons per acre. You have been paying a labor contractor $150 per ton to harvest the peaches every year. You have been investigating a mechanical harvester for the peaches which costs $350,000 and has a 7 year economic life. To estimate its annual cost, use a straight line depreciation. If you buy the harvester you will no longer have to pay the $150 per ton cost of hand picking the peaches, but you will have to hire 4 people at $25 per ton harvested to run the harvest machinery. The yield remains the same with the harvester. The harvester will require fuel and maintenance at $50 per ton harvested. Finally, you estimate that the machine harvested peaches will have slightly less quality, reducing the annual gross income by $100,000. Question
You grow 200 acres of canning peaches every year. The average yield is 20 tons per acre. You have been paying a labor contractor $150 per ton to harvest the peaches every year. You have been investigating a mechanical harvester for the peaches which costs $350,000 and has a 7 year economic life. To estimate its annual cost, use a straight line depreciation. If you buy the harvester you will no longer have to pay the $150 per ton cost of hand picking the peaches, but you will have to hire 4 people at $25 per ton harvested to run the harvest machinery. The yield remains the same with the harvester. The harvester will require fuel and maintenance at $50 per ton harvested. Finally, you estimate that the machine harvested peaches will have slightly less quality, reducing the annual gross income by $100,000.
Question: Should you replace the hand picking with the mechanical harvester? Use a partial budget model to answer this question, and show your work.
The question is related to replace the hand picking harvesting with mechanical harvester to harvest 200 acres of canning peaches every year. The cost and other expenses under both the options are given and we have to decide whether hand picking will be replaced by mechanical harvester. In order to take a decision we have to compare the cost of harvesting under both the options and then compare if the cost under machanical harvesting is lower as compared to hand picking then it will be replaced otherwise not.
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