Maintenance The fire department has a number of failures with its oxygen masks a

Question

Maintenance The fire department has a number of failures with its oxygen masks and is evaluating the possibility of outsourcing preventive maintenance to the manufacturer. Because of the risk associated with a failure, the cost of each failure is estimated at $2,000. The current maintenance policy, with station employees performing maintenance, has yielded the following history (2) Number of breakdowns Number of years in which breakdowns occurred The manufacturer will guarantee repairs on any and all failures as part of a service contract. The cost of this service is S5,000 per year. What is the most economical policy? I

Explanation / Answer

Policy 1 : To fix failure when it occurs

Total no. of Breakdowns : 0*4 + 1*3 + 2*1 + 3*5 + 4*5 + 5*0 = 40

Cost per breakdown : $2,000

Total cost : $2,000 * 40 = $80,000

Total no. of years = 4 + 3 + 1 + 5 + 5 = 18

Cost per year = $80,000/18 = $4,444.44

Policy 2 : Service contract

Cost per year = $5,000 per year

Hence, the first policy is the more economical.

No. of Breakdowns 0 1 2 3 4 5 No. of Years 4 3 1 5 5 0

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