Lennon Hearth Products manufactures glass door fireplace screens that have two types of mounting brackets for the frame. And L-shaped bracket is used for relatively small fireplace openings, and a U-shaped bracket is used for all others. The company includes both types of brackets in the box with the product, and the purchaser discards the one not needed. The cost of these two brackets with screws and other parts is $3.50. If the frame of the fireplace screen is redesigned, a single universal bracket can be used that will cost $1.20 to make. However, retooling will cost $6000. In addition, inventory write-downs will amount to another $8000. If the company sell 1200 fireplace units per year, should the company keep the old brackets or to with the new ones, assuming the company uses an interest rate of 15% per year and it wants to recover its investment in 5 years? Use the present worth method.

Question

Lennon Hearth Products manufactures glass door fireplace screens that have two types of mounting brackets for the frame.  And L-shaped bracket is used for relatively small fireplace openings, and a U-shaped bracket is used for all others.  The company includes both types of brackets in the box with the product, and the purchaser discards the one not needed.  The cost of these two brackets with screws and other parts is $3.50.  If the frame of the fireplace screen is redesigned, a single universal bracket can be used that will cost $1.20 to make.  However, retooling will cost $6000.  In addition, inventory write-downs will amount to another $8000. If the company sell 1200 fireplace units per year, should the company keep the old brackets or to with the new ones, assuming the company uses an interest rate of 15% per year and it wants to recover its investment in 5 years?   Use the present worth method.

bobpursley · Answer

We will be happy to critique your thinking. This can be done on a spreadsheet.