Chapter 5 question: 1. A manager must decide which type of machine to buy, A B,
ID: 397544 • Letter: C
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 $50,000 $40,000 $90,000 Product forecasts and processing times on the machines are as follows: PROCESSING TIME PER UNIT minutes) Annual Product DemandA 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 Consider this additional information: The machines differ in terms of hourly operating costs: The a. b.Explanation / Answer
Given
Machine
Cost
A
$50,000
B
$40,000
C
$90,000
Demand
Product
Annual demand
Processing time per unit
A
B
C
1
18,000
3
4
2
2
14,000
4
4
3
3
8,000
5
6
4
4
32,000
2
2
1
For A
Product
Annual demand
Processing time
produced in 1 hr
produced in 10 hours
For 250 days
No of machine required to meet demand
A
1
18,000
3
20
200
50000
0.4
2
14,000
4
15
150
37500
0.4
3
8,000
5
12
120
30000
0.3
4
32,000
2
30
300
75000
0.4
Operating Cost
Product
Annual demand
Processing time
produced in 1 hr
No of hours required to meet demad
Operating cost per hour
Total operating cost
A
1
18,000
3
20
900.0
$11
$9,900.0
2
14,000
4
15
933.3
$11
$10,266.7
3
8,000
5
12
666.7
$11
$7,333.3
4
32,000
2
30
1066.7
$11
$11,733.3
$39,233.3
For B
Product
Annual demand
Processing time
B
produced in 1 hr
produced in 10 hours
For 250 days
No of machine required to meet demand
1
18,000
4
15
150
37500
0.5
2
14,000
4
15
150
37500
0.4
3
8,000
6
10
100
25000
0.3
4
32,000
2
30
300
75000
0.4
Operating Cost
Product
Annual demand
Processing time
No of hours required to meet demad
Operating cost per hour
Total operating cost
B
produced in 1 hr
1
18,000
4
15
1200.0
$11
$13,200.0
2
14,000
4
15
933.3
$11
$10,266.7
3
8,000
6
10
800.0
$11
$8,800.0
4
32,000
2
30
1066.7
$11
$11,733.3
$44,000.0
For C
Product
Annual demand
Processing time
C
produced in 1 hr
produced in 10 hours
For 250 days
No of machine required to meet demand
1
18,000
2
30
300
75000
0.2
2
14,000
3
20
200
50000
0.3
3
8,000
4
15
150
37500
0.2
4
32,000
1
60
600
150000
0.2
Operating cost
Product
Annual demand
Processing time
No of hours required to meet demad
Operating cost per hour
Total operating cost
C
produced in 1 hr
1
18,000
2
30
600.0
$12
$7,200.0
2
14,000
3
20
700.0
$12
$8,400.0
3
8,000
4
15
533.3
$12
$6,400.0
4
32,000
1
60
533.3
$12
$6,400.0
$28,400.0
Best alternative
Total cost
cost of machine
no of machine
toal cost of machine
operating cost
Total overall cost
A
$50,000
1
$50,000
$39,233.3
$89,233.3
B
$40,000
1
$40,000
$44,000.0
$84,000.0
C
$90,000
1
$90,000
$83,233.3
$173,233.3
Hence Best alternative is B
$39,233.3
Machine
Cost
A
$50,000
B
$40,000
C
$90,000
Demand
Product
Annual demand
Processing time per unit
A
B
C
1
18,000
3
4
2
2
14,000
4
4
3
3
8,000
5
6
4
4
32,000
2
2
1
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