Review Problem 7.2
Canadian Widgets makes rocker arms for car engines. The manufacturing
process consists of punching blanks from raw stock, forming the rocker arm in
a 5-stage progressive die, and finishing in a sequence of operations using hand
tools. A recently developed 10-stage die can eliminate many of the finishing
operations for high-volume production.
The existing 5-stage die could be used for a different product, and in this case
would have a salvage value of $20 000. Maintenance costs of the 5-stage die
will total $3500 this year and are expected to increase by $3500 per year. The 10-
stage die will cost $89 000 and will incur maintenance costs of $4000 this year,
increasing by $2700 per year thereafter. Both dies depreciate at a declining-
balance rate of 20 percent per year. The net yearly benefit of the automation of
the finishing operations is expected to be $16 000 per year. The MARR is 10
percent. Should the 5-stage die be replaced?