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Sheet metal working machines: how to calculate the investment payback period

Published: - 13/10/2017 Author: Dell'Oro, Management When investing in a new machine, it is interesting to calculate how much time it will take for the investment to be paid back.

The method Dallan suggests is very simple, comparing the value of the investment with the savings (corresponding to the cash flow) generated by the new production line.

New Machine cycle time, Cost per hour, Efficiency
We have covered in a previous article how to calculate the manufacturing cost of a sheet metal product: we will use the results of the same calculations to identify the production cost per part of the new production line.

To calculate the hourly cost of the machine, we start from the formula taken from the previous article "How to  the hourly cost of a sheet metal working machine":

(Total Hourly Cost) = (Investment HC) + (Electricity HC) + (Labor HC) + (Maintenance HC) + (Consumables HC) + (Occupied area HC)

This formula needs to be modified, removing the Investment Hourly Cost factor to find the Operating Cost of the line:

(Operating Cost) = (Electricity HC) + (Labor HC) + (Maintenance HC) + (Consumables HC) + (Occupied area HC)

In fact, the Investment Hourly Cost requires to estimate the payback period, which is what we need to calculate now. These costs are the mere operating costs of the line. Using the following formula, we can calculate the cost of the product in the new machine.

(Product cost in new machine) = (Raw materials cost) + (Operating Cost) * (Cycle time per one piece) / (Efficiency)

The details on how to get to the formula can be found here.

For example, a product with: raw material cost 1,91 Euro, Cycle time 12 seconds, Operating Cost 21,8 Euro per hour, Efficiency 80,5% gives a Product Cost of 2 Euros.

Comparison of production cost with present product cost