Question

The cycle time for the robotic assembly of a centrifugal pump is estimated at 22 seconds. The current assembly time using manual methods is 30 seconds. Given that the annual production requirement is 460,000 units, discuss the financial viability of using robots for this application. The following additional information is available :
Cost of Assembly Robot $75,000

Cost of Safety System $10,000

Cost of Feeders, Tooling etc $30,000

Annual Operating Costs $10,000

Labour Costs (including overheads) $45,000 / worker / annum

Profit $2.00 / unit

Required Rate of Return on Investment 10 % per annum

Year Discounting Factor

1 0.9

2 0.82

3 0.74

4 0.67

5 0.60

It may be assumed that production is carried out for two eight hour shifts per day, five days a week and forty eight weeks a year. State any assumptions made in your analysis.

Answer 1

No. Of units (New) = 2*8*5*48*1440/22 = 251,345

Current = 184,320

Incremental Profit = 2*67025 =134050 per year

PVCI (Present Value of Incremental Inflows)=3.79*134050 = 508050

Costs:

Assembly Robot 75000

Safety System 10,000

Feeders, Tooling 30,000

Annual Operating Costs (PV) = 3.79*10,000 = 37,900

Net Benefit = 355,150

Hence, the robots should be used because of incremental profit of 355,150

Assumption: Labour force requirement will not change in the new robotic system.