Chapter 5 question: 1. A manager must decide which type of machine to buy, A, B,

Question

Chapter 5 question: 1. A manager must decide which type of machine to buy, A, B, or C. Machine costs are as follows: Machine Cost A $50,000 40,000 $90,000 Product forecasts and processing times on the machines are as follows: PROCESSING TIME PER UNIT (minutes) Annual Product Demand A 18,000 14,000 8,000 32,000 Assume that only purchasing costs are being considered. Which machine would have the lowest total cost, and how many of that machine would be needed? Machines operate 10 hours a day, 250 days a year. a. Consider this additional information: The machines differ in terms of hourly operating costs: The A machines have an hourly operating cost of $10 each, B machines have an hourly operating cost of $11 each, and C machines have an hourly operating cost of $12 each. Page 218Which alternative would be selected, and how many machines, in order to minimize total cost while satisfying capacity processing requirements? b.

Explanation / Answer

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Answer:

a)

No. of machines of a single type required to satisfy annual demand:

The respective cost of purchase for these machines are:

Answer a: Hence based on purchasing cost Machine B should be purchased with the cost of $80,000 (2 machines)

b)

Calculating operating cost for each machine:

Total cost for each machine =

Answer b: Hence when operating cost is also considered Machine C is best option with total cost of $ 1,794,000

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