A Cutting Tool Has a Lifetime That Is Normally Distributed

question 48

Essay

A cutting tool has a lifetime that is normally distributed with an average life of 400 hours and a standard deviation of 50 hours.Present policy is preventive maintenance which requires changing all cutting tools at the end of each month.Current operations are two shifts per day and 7 working hours per shift.At 20 days per month,each cutting tool is in use 280 hours per month.(All cutting tools that fail are simply shut down until the end of the month sweep).The variable costs of replacement under the current policy are $8 per tool plus installation labor of $6 per tool.There are 40 tools in use.
-Management is also considering a third policy of remedial maintenance,which is to replace tools only on an as-failed basis.Costs are $8 per tool plus $12 per tool for installation labor.What is the estimated annual total cost of this policy?

---

Definitions:

Inventory

Goods or materials a business holds for the purpose of resale.

Order

A request to purchase, sell, or supply goods or services.

Total Variable Costs

The cumulative amount of variable expenses incurred in the production of goods or services.

Volume Of Activity

This term refers to the level of operations or the quantity of work done or services provided in a specific period.