Journal Article

New Considerations for Evaluating Capital Equipment Purchases

Gurney, Brian, Discenza, Richard

1990

Overview

Today, capital equipment purchases are more complex and larger and require a longer implementation period. Traditional accounting principles hinder the purchases of new technology for improved competitiveness. They do not allow for such intangibles as improved quality, greater flexibility, reduced time to customers, quicker order processing, or higher customer satisfaction. Investment in capital equipment can be thought of in terms of 3 levels: 1. a standalone piece of equipment, 2. a manufacturing cell, and 3. a fully integrated factory. Capital equipment purchases at each level allow the firm to reduce costs, reduce inventory, and increase capacity and contribute to throughput flexibility, reliability, and quality. At the first level, purchases can be justified on the basis of direct cost savings. At the 2nd level, indirect savings need to be recognized and incorporated into the investment alternative. At the integrated factory level, nonquantifiable variables must be incorporated into the decision.

• Publisher: American Production & Inventory Control Society, Inc
• Subject: Accounting procedures / Capital expenditures / Capital investments / Equipment acquisition planning / Factors / Manufacturing / Product costing / Statistical data