Two machines are being considered for the production of a particular part for which there is a long-term demand. Machina A costs P50,000 and is expected to last 3 years and have a P10,000 salvage value. Machine B costs P75,000 and is expected to last 6 years and have zero salvage value. Machine A can produce a part in 18 seconds; Machine B requires only 12 seconds per part. The out-of-pocket hourly cost of operation is P38 for A and P30 for B. Monthly maintenance costs are P200 for A and P220 for B. If interest on invested capital is 25%, determine the number of parts per year at which the machines are equally economical. If the expected number of parts per year is greater than this break-even quantity, which machine would be favored? Use rate of return on additional investment method.

Two machines are being considered for the production of a particular part for which there is a long-term demand. Machina A costs P50,000 and is expected to last 3 years and have a P10,000 salvage value. Machine B costs P75,000 and is expected to last 6 years and have zero salvage value. Machine A can produce a part in 18 seconds; Machine B requires only 12 seconds per part. The out-of-pocket hourly cost of operation is P38 for A and P30 for B. Monthly maintenance costs are P200 for A and P220 for B. If interest on invested capital is 25%, determine the number of parts per year at which the machines are equally economical. If the expected number of parts per year is greater than this break-even quantity, which machine would be favored? Use rate of return on additional investment method.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter1: Introduction And Goals Of The Firm

Section: Chapter Questions

Problem 4E: In the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act...

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