A manager must decide which type of machine to buy, A, B, or C. Machine costs (p
ID: 2747138 • Letter: A
Question
A manager must decide which type of machine to buy, A, B, or C. Machine costs (per individual machine) are as follows: Machine Cost A $ 80,000 B $ 70,000 C $ 40,000 Product forecasts and processing times on the machines are as follows: PROCCESSING TIME PER UNIT (minutes) Product Annual Demand A B C 1 25,000 5 4 2 2 22,000 3 1 4 3 20,000 3 1 6 4 9,000 5 6 2 a. Assume that only purchasing costs are being considered. Compute the total processing time required for each machine type to meet demand, how many of each machine type would be needed, and the resulting total purchasing cost for each machine type. The machines will operate 10 hours a day, 250 days a year. (Enter total processing times as whole numbers. Round up machine quantities to the next higher whole number. Compute total purchasing costs using these rounded machine quantities. Enter the resulting total purchasing cost as a whole number. Omit the "$" sign.) Total processing time in minutes per machine: A B C Number of each machine needed and total purchasing cost A $ B $ C $ b. Consider this additional information: The machines differ in terms of hourly operating costs: The A machines have an hourly operating cost of $12 each, B machines have an hourly operating cost of $13 each, and C machines have an hourly operating cost of $12 each. What would be the total cost associated with each machine option, including both the initial purchasing cost and the annual operating cost incurred to satisfy demand? (Use rounded machine quantities from Part a. Do not round any other intermediate calculations. Round your final answers to the nearest whole number. Omit the "$" sign.) Total cost for each machine A B C ReferenceseBook & Resources WorksheetDifficulty: 2 MediumLearning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Problem 5-11Learning Objective: 05-03 Describe ways of defining and measuring capacity.Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Check my workPrevious attempt ©2016 McGraw-Hill Education. All rights reserved.
Explanation / Answer
What we have
Machine
Cost
A
80000
B
70000
C
40000
Processing Time per Unit (Minutes)
Product
Annual Demand
A
B
C
1
25000
5
4
2
2
22000
3
1
4
3
20000
3
1
6
4
9000
5
6
2
a. 10 operating hours per day and 250 operating days per year:
10 hours per day × 60 minutes per hour × 250 days per year = 1,50,000 minutes per year available time per machine
Processing Time per Unit (Minutes)
Product
Annual Demand
A
B
C
1
25000
125000
100000
50000
2
22000
66000
22000
88000
3
20000
60000
20000
120000
4
9000
45000
54000
18000
Total
296000
196000
276000
Machine A: 296,000 minutes per year required / 1,50,000 minutes per year available = 1.97 2 Machine A's needed (rounded up) × $80,000 each = $160,000 total purchasing cost for Machine A.
Similarly,
Machine B: 196,000 minutes per year required / 1,50,000 minutes per year available = 1.31 2 Machine B's needed (rounded up) × $70,000 each = $140,000 total purchasing cost for Machine B.
Machine C: 276,000 minutes per year required / 1,50,000 minutes per year available = 1.84 2 Machine C's needed (rounded up) × $40,000 each = $80,000 total purchasing cost for Machine C.
Therefore, purchase 3 machines of Type C.
b. Total combined purchasing and annual operating costs for Machine types A, B and C:
(296,000 minutes / 60 minutes per hour × $12 per hour) annual operating cost + $160,000 purchasing cost = $219,200 total cost for Machine A (rounded)
(196,000 minutes / 60 minutes per hour × $13 per hour) annual operating cost + $140,000 purchasing cost = $182,466 total cost for Machine B (rounded)
(276,000 minutes / 60 minutes per hour × $12 per hour) annual operating cost + $80,000 purchasing cost = $135,200 total cost for Machine C (rounded)
Machine
Cost
A
80000
B
70000
C
40000
Processing Time per Unit (Minutes)
Product
Annual Demand
A
B
C
1
25000
5
4
2
2
22000
3
1
4
3
20000
3
1
6
4
9000
5
6
2
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