The Global Company Has Engaged a Management Consultant to Analyze

Essay

The Global Company has engaged a management consultant to analyze and improve its operations.His major recommendation is to "conveyorize" the production floor.This would represent a sizable investment for Global.In order to determine whether or not the idea is feasible,a breakeven analysis will be utilized.The situation is as follows:
The cost of the conveyor will be $200,000 to be depreciated on a straight-line basis over 10 years.The conveyor will reduce operating costs by $0.25 per unit.Each unit sells for $2.00.The sales manager estimates that,on the basis of previous years,Global can expect a sales volume of 100,000 units.This represents 100 percent utilization of capacity.Current yearly contribution to fixed costs is $100,000.Current vc rate is $0.50 per unit.Should Global install this conveyor?