Problem 5-1A A manager must decide which type of machine to buy, A, B, or C. Mac
ID: 388423 • Letter: P
Question
Problem 5-1A
A manager must decide which type of machine to buy, A, B, or C. Machine costs (per individual machine) are as follows:
Product forecasts and processing times on the machines are as follows:
a. 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, 250 days a year. (Enter total processing times as whole numbers. Round up machine quantities 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 "$" sign.)
b. Consider this additional information: The machines differ in terms of hourly operating costs: The A machines have an hourly operating cost of $11 each, B machines have an hourly operating cost of $12 each, and C machines have an hourly operating cost of $10 each. What would be the total cost associated with each machine option, including both the initial purchasing cost and the annual operating cost incurred to satisfy demand?(Use rounded machine quantities from Part a. Do not round any other intermediate calculations. Round your final answers to the nearest whole number. Omit the "$" sign.)
C
Problem 5-1B
A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $36,000 for A and $23,000 for B; variable costs per unit would be $10 for A and $11 for B; and revenue per unit would be $16.
a. Determine each alternative’s break-even point in units. (Round your answer to the nearest whole amount.)
b. At what volume of output would the two alternatives yield the same profit? (Round your answer to the nearest whole amount.)
Profit units
c. If expected annual demand is 11,000 units, which alternative would yield the higher profit?
Higher profit (Click to select) B A
Explanation / Answer
Total processing time for each machine type
= Annual demand for product 1 x Processing time / unit of product 1 + annual demand for product 2 x Processing time / unit of product 2 + Annual demand for product 3 x Processing time / unit product 3
Thus :
Total processing time for Machine A
= 16000 x 3 + 10000 x 6 + 15000 x 1 + 17000 x 5
= 48000 + 60000 + 15000 + 85000
= 208,000 minutes
Total processing time for Machine B
= 16000 x 4 + 10000 x 5 + 15000 x 3 + 17000 x 3
= 64000 + 50000 + 45000 + 51000
= 210,000 minutes
Total Processing time for Machine C
= 16000 x 4 + 10000 x 1 + 15000 x 6 + 17000 x 4
= 64000 + 10000 + 90000 + 68000
= 232000 minutes
TOTAL PROCESSING TIME FOR EACH MACHINE TYPE IN MINUTES :
A
208,000
B
210,000
C
232,000
Each machine operates 10 hours a day 240 days a year
= 2400 hours = 144000 minutes
Therefore,
Number of Machine A which will be required
= Total processing time required on machine A/ Available time per machine per year
= 208000 / 144000
= 1.44 ( 2 rounded to next higher whole number )
Number of machine B which will be required
= Total processing time required / Available time per machine per year
= 210000/ 144000
= 1.458 ( 2 rounded to next higher whole number)
Number of machine C which will be required
= Total processing time required / Available time per machine per year
= 232000/ 144000
=1.611 ( 2 rounded to next higher whole number )
Hence,
Total purchasing cost for Machine A = Purchasing cost/ machine x Number of machines = $60000 x 2 = $120,000
Total purchasing cost for machine B = Purchasing cost / machine x Number of machines = $50,000 x 2 = $100,000
Total purchasing cost for machine C = Purchasing cost / machine x Number of machines = $60,000 x 2 = $120,000
NUMBER OF EACH MACHINE REQUIRED AND PURCHASING COST :
A
2
$120,000
B
2
$100,000
C
2
$120,000
Total operating cost for each machine type
= Total operating time for each machine type in minutes x Hourly operating cost / 60 minutes
Thus,
Total operating cost for machine type A
= 208000 X 13/60 = $45066.66
Total operating cost for machine type B
= 210000 X 15/60 = $52500
Total operating cost for machine type C
= 232000 X 10/60 = $38666.66
Total cost for each machine type= Total purchasing cost + Total operating cost
Thus,
Total cost for machine A = $120,000 + $ 45066.66 = $165,066.66 ( $165,067 rounded to nearest whole number)
Total cost for machine B = $100000 + $52500 = $152,500
Total cost for machine C = $120,000 + $38666.66 = $ 158666.66 ( $158667 rounded to nearest whole number)
TOTAL COST FOR EACH MACHINE , $:
A
165067
B
152500
C
158667
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