ENGR.ECONOMIC ANALYSIS W/DASHBOARD
ENGR.ECONOMIC ANALYSIS W/DASHBOARD
14th Edition
ISBN: 9780190063467
Author: NEWNAN
Publisher: OXF
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Chapter 13, Problem 34P
To determine

The difference between EUAC’s of upgrading option and labor-intensive process option

Expert Solution & Answer
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Answer to Problem 34P

The difference in EUAC’s is $5,325

Explanation of Solution

Upgrade option

Cost of upgrade = $12,000, i = 15%, n = 9 years

  EUAC of upgrade option=Cost×( A/P,i%,n)                                         =12,000×( A/P,15%,9)                                         =12000×0.2095                                         =$2,515

Labor intensive option

  Direct labor cost = $3,500Indirect plant expenses = 60%×3500                                     = $2,100Office overhead = 40%×(3500+2100)                          = $2,240

   EUAC of labor intensive option=3500+2100+2240 =$7840

  Difference in EUAC’s of both options=EUAC of labor optionEUAC of upgrade option                                                             = 78402515                                                             = $5,325

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