Final answer:
To find the annual rate of production at which two production alternatives for creating top rails are equally economical, the total annual costs of both alternatives need to be equated, considering fixed and variable costs, and solved for the annual production quantity.
Step-by-step explanation:
The student is assessing the economic equivalence of two production alternatives for creating top rails based on a minimum attractive rate of return (MARR) of 8%. To do this, the student must consider the installed cost, expected life, salvage value, and variable cost per unit of each alternative to find the annual rate of production at which the alternatives would be equally economical.
The analysis will involve equating the total annual cost (TAC) of both alternatives. The TAC includes both annual fixed costs (calculated using the capital recovery factor formula considering the MARR and expected life) and the total annual variable costs (calculated by multiplying the variable cost per top rail by the annual production quantity).
Once the TACs are equated, the student can solve the resulting equation for the annual production quantity. This quantity will represent the break-even point at which it would not matter economically whether the company chooses Flow Line Manufacturing or the Manufacturing Cell.