A portable generator is needed at a remote construction site. Two alternatives a

Question

A portable generator is needed at a remote construction site. Two alternatives are being considered. Their annual fixed costs and operating and maintenance costs per hour are shown in the table below. The contractor runs three 8-hour shifts per day for 250 working days per year.

Generator

Fixed Costs ($/yr)

O&M Costs ($/hour)

Determine the breakeven value in generator hours per shift for the contractor to be indifferent between the two portable generators.

Hours = ?

B) Estimated annual cost $ ?

If the site requires a generator for 5.5 hours per shift, which generator is preferred, and what is its estimated annual cost?

C) Preferred generator: Generator 1 or Generator 2

D) Estimated annual cost $ ?

Generator

Fixed Costs ($/yr)

O&M Costs ($/hour)

Explanation / Answer

Break Even Value in generator hours per day, in which Contractor is Indifferent = Y Cost of Generator 1 = $4000 (Fixed Cost) + $7 X 250 Days X Y or Cost of Generator 1 = $4000 +1750 Y Cost of Generator 2 = $8000 (Fixed Cost) + $5.50 X 250 Days X Y Cost of Generator 2 = $8000 + 1375 Y In Break Even Value Cost of Generator 1 = Coat of Generator 2 4000 + 1750 Y = 8000 + 1375 Y Y = 10.67 Hrs per Day (Approx) or Break even Value per Shift = 10.67 Hrs / 3 = 3.56 hrs per shift (Approx) Answer A. Calculation of Estimated Annual Costs Generator 1 2 Fixed Cost      4,000.00      8,000.00 O & M Costs    13,125.00    10,312.50 Generator 1 - 2.50 Hrs X 3 X 250 Days X $7 Generator 2 - 2.50 Hrs X 3 X 250 Days X $5.50 Total Annual Costs    17,125.00    18,312.50 Answer b. Generator Preferred - Generator 1 (Low Annual Cost than Generator 2) Answer c. Calculation of Estimated Annual Costs Generator 1 2 Fixed Cost      4,000.00      8,000.00 O & M Costs    28,875.00    22,687.50 Generator 1 - 5.50 Hrs X 3 X 250 Days X $7 Generator 2 - 5.50 Hrs X 3 X 250 Days X $5.50 Total Annual Costs    32,875.00    30,687.50 Answer d. Generator Preferred - Generator 2 (Low Annual Cost than Generator 1)

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