Problem 5-11 A manager must decide which type of machine to buy, A, B, or C. Mac

Question

Problem 5-11 A manager must decide which type of machine to buy, A, B, or C. Machine costs (per individual machine) are as follows: $50,000 $40,000 $70,000 ? Product forecasts and processing times on the machines are as follows: UNIT (minutes Annual 21,000 11,000 25,000 o. 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, 230 days a year. (Enter totel processing times as whole numbers. Round up machine quentities 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 "S" sign.) K Prev 5 of S

Explanation / Answer

a. The 1st step is to compute the processing time needed by each machine. For instance processing time needed by Machine A for product 1 = 12,000*2 = 24,000 minutes

Processing time available by the machines (minutes) = 10*230*60 = 138,000 minutes.

Thus no. of A needed = 163,000/138,000 = 163,000/138,000 = 1.18. This will be rounded off to 2. Purchasing cost for A = 50,000*2 = $100,000

Thus the answers are:

The lowest cost is for machine A and so manager will select machine A.

b. Operating costs for Machine A = (163,000/60)*13 = $35,316.67. Thus total cost = purchase cost+operating cost = 100,000+35,316.67 = 135,316.67

Similarly computation has been done for B and C. The answer is:

Here also the lowest cost is for Machine A.

Processing time (minutes) Product A B C 1 24,000.00 12,000.00 24,000.00 2 42,000.00 126,000.00 63,000.00 3 22,000.00 44,000.00 55,000.00 4 75,000.00 125,000.00 50,000.00 Total 163,000.00 307,000.00 192,000.00

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