A company needs to purchase a machine to fabricate a custom part used in its pro
ID: 328594 • Letter: A
Question
A company needs to purchase a machine to fabricate a custom part used in its production process. Two machines from two different suppliers are currently under consideration. The company has gathered the following information related to the machines from the two? suppliers:
The component cost refers to the cost to replace a component on the machine after a certain number of units have been produced. For? example, with Machine? A, after 6,000 custom parts have been? produced, a component costing $195 must be replaced. The company plans to produce 120,000 custom parts annually. Conduct a total cost of ownership for the two machines.
The annual total cost of ownership for Machine A is?
The annual total cost of ownership for Machine B is?
Machine A Machine B Machine price Component cost Component life (units) Machine life (years) $9,500$10,000 $195 6,000 $210 5,000 3 3Explanation / Answer
MAchine A:
initial cost = 9500
component life = 6000
total annual production = 120000
number of time component to be replaced = 120000/6000 = 20
total cost of component = 20*195 = 3900 per year
total component replacement cost for 3 years of machine life = 3900*3 = 11700
Total cost of ownership of machine A = initial cost + 11700 = 21200
Machine B:
initial cost = 10000
component life = 5000
total annual production = 120000
number of time component to be replaced = 120000/5000 = 24
total cost of component = 24*210 = 5040 per year
total component replacement cost for 3 years of machine life = 5040*3 = 15120
Total cost of ownership of machine B = initial cost + 15120 = 25120
The annual total cost of ownership for Machine A is 11700
The annual total cost of ownership for Machine B is 15120
Total cost of ownership of machine A = 21200
Total cost of ownership of machine B = 25120
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