Hi All, I need some help with this question please. It is greatly apprciated. Th
ID: 1213684 • Letter: H
Question
Hi All, I need some help with this question please. It is greatly apprciated.
The process engineer at Strowbridge Metal Works has the choice of machining a particular part on either of two machines. Orders for this part are received regularly, but the order size varies. When the order is processed on Machine A, four sequential setup operations of 1 hour each are required. Once set up, the machining time is 0.50 hours per unit. When the order is processed on Machine B, eight sequential setup operations of 0.75 hours each are required. Once set up, the machining time per unit is 0.55 hours. The hourly wage rates for the operators are $20 and $18 for Machine A and Machine B, respectively. The hourly overhead rates, including setup time, are $30 and $27 for Machine A and Machine B, respectively.
a. Which machine is preferred if the order size is 100 units?
b. Which machine is preferred if the order size is 500 units?
c. What is the breakeven order size?
Note: Homework Question taken from : White, John A. Principles of Engineering Economic Analysis, 6th Edition. Wiley, 03/2012.
Explanation / Answer
a) Machine A for 100 units
= 4*1 + 0.5*100 = 4 + 50 = 54
Cost = 54*50 = 2700
Machine B for 100 units
= 8*0.75 + 0.55*100 = 6 + 55 = 61
Cost = 61*45 = 2745
So Machine A is preferred
b) Machine A for 500 units
= 4*1 + 0.5*500 = 4 + 250 = 254
Cost = 254*50 = 12700
Machine B for 500 units
= 8*0.75 + 0.55*500 = 6 + 275 = 281
Cost = 281*45 = 12645
So Machine B is preferred
c) Breakeven order size is when cost is same in both the machines
let order size is x
(4*1+0.5*x)*50 = (8*0.75+0.55*x)*45
40+5x = 54+4.95x
x = 280