[Dustin] Dustin is having a baby. Due to his future additional responsibilities,
ID: 425394 • Letter: #
Question
[Dustin] Dustin is having a baby. Due to his future additional responsibilities, he would like to start saving money now and needs your help. He cannot live without premium coffee so he wants to know if it would be more economical to buy a Keurig machine or a new drip coffee maker. Using the information in the table below, calculate the total life-cycle costs of the Keurig and the coffee maker over the next six years by conducting a value analysis. What is the total cost of the Keurig, the drip maker, and which should he purchase? Keurig Drip Maker Purchase Price $100 $30 Monthly Coffee Costs $20 $15 Annual Service Costs $10 $%15Explanation / Answer
Solution:
Total life-cycle costs of the Keurig and Drip Maker are calculated as below:
Total life-cycle costs = Purchase price + (Monthly coffee cost x Number of months) + (Annual service cost x Number of years)
Keurig:
Machine lifetime = 3 years
Monthly coffee requirement will be for 3 years = 36 months
Total life-cycle costs = $100 + ($20 x 36) + ($10 x 3)
Total life-cycle costs = $850
Drip maker:
Machine lifetime = 6 years
Monthly coffee requirement will be for 6 years = 72 months
Total life-cycle costs = $30 + ($15 x 72) + ($15 x 6)
Total life-cycle costs = $1200
Conclusion: On the basis of the total life-cycle costs, a Keurig machine should be purchased as it will be more economical for Dustin owing to the lower total life-cycle costs.
Answer: (C) $850, $1200, Keurig
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