As the equipment manager of a bottle cap manufacturer, Carla needs to decide on
ID: 385981 • Letter: A
Question
As the equipment manager of a bottle cap manufacturer, Carla needs to decide on purchasing a new plastic injection molding machine. Machine option 1 she is considering costs $20,000 for including installation. In addition, the maintenance cost is estimated to be $250 per month. The lifetime of the machine 1 is 5 years. It can produce 30,000 bottle caps per month. Machine option 2 costs $24,000 including installation, but the lifetime is expected to be 6 years. The monthly maintenance cost for machine 2 will be $300 per month. It can produce 35,000 bottle caps per month. a) What is the productivity of each machine? (hint: use bottle caps per dollar as the productivity unit) b) Which machine should be selected based on the productivity? Provide analytical reasoning.
Explanation / Answer
a) Productivity of Machine 1 = 30000/250
= 120 Bottle caps per dollar
Each month
The yearly fixed cost = 20000/4
= 5000
Productivity of Machine 2 = 35000/300
= 116.67 Bottle caps per dollar
The yearly Fixed cost = 24000/6
= 4000
b) the 1st machine should be selected based on the productivity as the cost is equal and productivity of the machine 1 is better than that of 2, it should be selected in Thai context.
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