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?

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Definitions:

Joint Production Costs

The costs incurred in the process of producing two or more products simultaneously from the same raw materials or process.

Specialised Equipment

Equipment designed for a specific purpose or unique task, often requiring specific skills or technology to operate effectively.

Fixed Overhead

Costs associated with operating a business that do not change in relation to production volume or sales, such as rent, salaries, and insurance.

Units of Production

A measure of output where production volume is quantified in terms of individual units produced.