Using the data from the case and completing the comparison form (Exhibit 1), the differential willingness to pay is $0.74 / 1K performs in savings for $200K pre tax expense or $43.7K after tax expense per year for $0.74 / 1K performs in savings. The savings are a result of the husky machine being more efficient in floor space usage, electricity usage, resin usage, and capital expense/output.
In analyzing the spreadsheet, one issue arose; it was evident that the cost savings using the Husky machines were output based. The spreadsheet assumes each machine is used at its capacity for the year. This is not a bad assumption, since the operators would want to use the machines to their capability, but in order for the user to save the $0.74/1K output, they would have to utilize the husky machine to its fullest. This raised some questions as to weather or not the machine was really more efficient and if it was, where would manufacturers benefit from owning a Husky over a Nestal. Also it appeared that the savings was on a sliding scale, maximizing at $0.74
Since the husky machine could produce ~135M units/year and the Nestal machine can only produce ~101M units/year, it is obvious that the Husky machine has an advantage relative to capacity. But if you limit the output to equal the Nestal machine (exhibit 2), the Husky machine is at a cost disadvantage. In fact, you would have to produce ~110.75M units in order to equal the cost of the Nestal machine (Exhibit 3). If the manufacturer wanted to limit production to ~101M units, they would demand the cheaper of the 2 models, the Nestal. However, producing 1 more unit would be impossible with the Nestal machine. If that output is desired, they would have to spend anoth ...