Tuesday, July 12, 2011

What Amount could be justified for purchasing this new system?

The BowWow Food Processing Company is presently using an outdated method for filling 25-pound sacks of dry dog food. To compensate for weighing inaccuracies inherent to this packaging method, the process engineer at the plant has estimated that each sack is overfilled by 1/16 pound on the average. A better method of packaging is now available that would eliminate overfilling (and underfilling). The production quota for the plant is 400,000 sacks per year, and a pound of dog food costs this plant $0.18 to produce. The new method has an estimated life of four years with a salvage value of $10,000. The present packaging operation expense is $2,500 per year more to maintain than the new method. If the MARR is 12% per year for this company, what amount could be justified for the purchase of the new packaging method? Enter you answer to the nearest dollar.

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