) Calculate processing time needed by each machine.
ie, Annual Demand * Processing Time
Product A B C
1 48000 64000 64000
2 60000 50000 10000
3 15000 45000 90000
4 85000 51000 68000
TOTAL 208000 210000 232000
Given: 10 operating hours per day and 240 operating days per year.
10 hours per day * 60 minutes per hour * 240 days per year = 144,000 minutes per year available time per machine.
No. of machine A needed = 208,000 minutes per year required/ 144,000 minutes per year available =1.44 ->rounded up to 2
No. of machine A needed * $60,000(Cost of Machine A) = $120,000 Total purchasing cost of Machine A
No. of machine B needed = 210,000 minutes per year required/ 144,000 minutes per year available =1.45 ->rounded up 2
No. of machine B needed * $50,000 (Cost of Machine B) = $100,000 Total purchasing cost of Machine B
No. of machine C needed = 232,000 minutes per year required/ 144,000 minutes per year available = 1.61 ->rounded up 2
No. of machine C needed * $50,000 (Cost of Machine C) = $100,000 Total purchasing cost of Machine C
We will buy 2 B’s as the purchasing cost is less compared to other machines.
Total operating cost = purchase cost + operating cost; and, convert processing minutes in a into processing hours
Machine A operating cost = 120,000+( 208,000 / 60 ) * $13 per hour = 165,066
Machine B operating cost = 100,000+( 210,000 / 60 ) * $15 per hour = 152,500
Machine C operating cost = 100,000+( 232,000 / 60 ) * $10 per hour = 138,666
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