1. A manufacturing plant is planning to replace outdated equipment with more ene
ID: 1179247 • Letter: 1
Question
1. A manufacturing plant is planning to replace outdated equipment with more energy-efficient and environmental-friendly equipment. Two models are under consideration. Model A is sold for $159,000 and can produce at an optimum speed of 78 unit/hour. Model B is sold for the same price, but can produced at an optimum speed of 76 unit/hour. Model A requires 6 hours of maintenance cost for every 4300 units produced, while Model B requires 5 hours of maintenance for every 3000 units. The maintenance cost for both models is $100 per hour. The variable operating cost is $340 per hour for Model A and $290 per hour for Model B. Due to obsolete parts, there is a sunk cost of $2700 for model A and $1900 for Model B. If the price of the product is $150 per unit and the company expects to sell 145,000 units each year, which model should be selected?2. What is the estimate of the cummulative average hours per unit required to produce the 5th unit of a production run that has a(n) 78% learning curve, if the first unit takes 50 hours?
2. What is the estimate of the cummulative average hours per unit required to produce the 5th unit of a production run that has a(n) 78% learning curve, if the first unit takes 50 hours?
Explanation / Answer
proceeding through model A
the no of working hours in model A = 145000/78 =1858.97 hrs/year
in model B =1907.89 hrs/year
maintanance cost in model A =202.32 hrs * 100 $ =20232 $
in model B =219.69 hrs *100 =21969 $
total variable cost in model A =145000*340 =49300000
in model B =42050000
sunk cost will be a income hence should be deducted.
so net cost occured with model A = 159000+20232-2700+49300000 =49476532 $
model B =159000+21969-1900+42050000=42229069 $
from the above it is clear the cost incurred will be much less in model B
and going with model B will decrease the cost by 7247463 $ /year
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