A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with its profit?
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- Thread starter kmahajan8
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kmahajan8 said:A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with its profit?
How many widgets will they be able to produce each year with the new machine?
If each widget brings in $5 profit, how much profit will they make each year after they purchase the machine?
The cost of the machine is $100,000....how many years of profit will be required to cover this cost?
Looks like you will need to divide the cost of the machine by the profit per year to determine the number of years.
D
Deleted member 4993
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kmahajan8 said:So the cost of the machine is 100,000 divided by (5*5000) = 4. So 4 years is right? It just seems too easy! But I guess that's how you solve it. Thanks for your help!
There is an unstated assumption in this solution - i.e. - when the productivity was increased (from 3000/yr to 5000/yr), the profit margin/widget remains unchanged.