Engineering Economy Engineering Economy ion 4: Machine A and Machine B make a sp
ID: 2428834 • Letter: E
Question
Engineering EconomyEngineering Economy
ion 4: Machine A and Machine B make a specific part to the same specification. Both Quesines will be used for one year only and are expected to have no market values at the end of macrear. Considering the data given in the table below, which machine should be selected? 4: Machine Machine A Machine B $10,000 Initial capital investment $5,500 Parts produced and sold per year 10,000 $16 10,000 Labor cost per hour $20 30% overheads (as a % of labor cost) 30% Time to make one part 20 minutes 10 minutes $3,000 Maintenance cost per year $1,000
Explanation / Answer
For Machine A,
Labor cost = 10,000 x (20/60) x $16 = $53,333
Overhead cost = Labor cost x 30% = $53,333 x 30% = $16,000
Total annual cost ($) = Initial investment + Labor + Overhead + Maintenance
= 5,500 + 53,333 + 16,000 + 1,000
= 75,833
For Machine B,
Labor cost = 10,000 x (10/60) x $20 = $33,333
Overhead cost = Labor cost x 30% = $33,333 x 30% = $10,000
Total annual cost ($) = Initial investment + Labor + Overhead + Maintenance
= 10,000 + 33,333 + 10,000 + 3,000
= 56,333
Since Machine B has lower cost during project period, Machine B should be selected.
NOTE: Since discount rate (MARR) is not provided, non-discounted cash flow analysis has been done.
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