Question

Two manufacturing methods have been proposed for a new production requirement. One method involves two general-purpose machines (GP) that costs $17,500 each, installed. Each will produce 10 pieces per hour and will require an operator costing $10.00 per hour during operation. The other method requires a special-purpose machine (SP) costing $55,000 that will produce 20 pieces per hour and will require an operator costing $12.00 per hour during operation. Both types of machines are expected to last 10 years and have negligible salvage values. Expected output is 20,000 pieces per year and the minimum acceptable rate of return is 20%. Other relevant data are as follows:

Cost	GP	SP
Power ($/hour)	0.25	0.75
Fixed maintenance ($/year)	750.00	900.00
Variable maintenance ($/hour)	0.125	0.30
Insurance ($/year)	4,900.00	5,500.00

Note that the fixed maintenance cost does not depend on the number of machines. Calculate the following for each option.

1-First cost (for only GP since it is given for SP).

2-Operation hours required per year per machine.

3-Labor cost per year.

4-Power cost per year.

5-Total maintenance cost per year.

6-Total annual operating and maintenance (O&M) costs.

7-[use analytical formula] Capital recovery.

8-Which method has the lower total annual cost? (i.e., perform AEC analysis).

Answer 1