A Manufacturing Plant Is Planning to Replace Outdated Equipment with More

question 6

Essay

A manufacturing plant is planning to replace outdated equipment with more energy- efficient and environmental- friendly equipment. Two models are under
consideration. Model A is sold for $159,000 and can produce at an optimum speed of 78 unit/hour. Model B is sold for the same price, but can produce at an optimum speed of 76 unit/hour. Model A requires 6 hours of maintenance for every 4300 units produced, while Model B requires 5 hours of maintenance for every 3300 units. The maintenance cost for both models is $100 per hour. The variable operating cost is $340 per hour for Model A and $290 per hour for Model B. Due to obsolete parts, there is a sunk cost of $2700 for model A and $1900 for Model B . If the price of the product is $150 per unit and the company expects to sell 145,000 units each year, which model should be selected?

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Definitions:

Sale-Or-Return

A sales agreement that allows the purchaser to return unsold goods to the seller rather than pay for them, typically used in retail or wholesale.

Risk Of Loss

Refers to the potential financial loss a party may face in a transaction due to damage, destruction, or theft of goods before they are delivered.

Formal Ball Gowns

Elegant and sophisticated dresses worn by women to formal events, characterized by their long length, luxurious fabrics, and ornate details.

Conforming Goods

Products or goods that meet the specifications and standards outlined in a contract or agreement.