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A department supervisor is considering purchasing one of two comparable photocopy machines, A or B. Machine A costs $10,000 and Machine B costs $1I0,500.This department replaces photocopy ma- chines every three years. The repair contract for Machine A costs $50 per month and covers an un- limited number of repairs. he repair contract for Machine B costs $200 per repair. Based on past performance, the distribution of the numbe of repairs needed over any one-year period for Machine B is shown below. 5. Number of Repairs Probability 0.50 0.25 0.15 0.10 + 0.25 + 0.35 You are asked to give a recommendation based on overall cost as to which machine, A or B, along with its repair contract, should be purchased. What would your recommendation be? Give statistical justification to support you recommendation. A: 4 10,00 0 B: #1D, S00 right anyher isB simce otsllo10

A department supervisor is considering purchasing one of two comparable photocopy machines, A or B. Machine A costs $10,000 and Machine B costs $1I0,500.This department replaces photocopy ma- chines every three years. The repair contract for Machine A costs $50 per month and covers an un- limited number of repairs. he repair contract for Machine B costs $200 per repair. Based on past performance, the distribution of the numbe of repairs needed over any one-year period for Machine B is shown below. 5. Number of Repairs Probability 0.50 0.25 0.15 0.10 + 0.25 + 0.35 You are asked to give a recommendation based on overall cost as to which machine, A or B, along with its repair contract, should be purchased. What would your recommendation be? Give statistical justification to support you recommendation. A: 4 10,00 0 B: #1D, S00 right anyher isB simce otsllo10

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Don’t get why it’s B that is cheaper
**Problem 5: Machine Purchase Decision** A department supervisor is considering purchasing one of two comparable photocopy machines, A or B. Machine A costs $1,000 and includes a service contract that covers any repairs. The repair contract for Machine B costs $350 per year, with additional charges of $200 per repair. Based on past performance, the distribution of the number of repairs needed over any one-year period for Machine B is given below: | Number of Repairs | Probability | |-------------------|-------------| | 0 | 0.50 | | 1 | 0.25 | | 2 | 0.15 | | 3 | 0.10 | **Recommendation Task:** You are asked to give a recommendation based on the overall cost analysis to determine which machine, A or B, along with its repair contract, should be purchased. Provide statistical justification to support your recommendation. **Calculation Breakdown:** - **Machine A:** - Fixed cost: $10,000 (including unlimited repairs). - **Machine B:** - Fixed cost: $1,500 (initial cost) + $350 (annual contract) = $1,850. - Variable cost depends on repairs needed: - 0 repairs: $0 - 1 repair: $200 - 2 repairs: $400 - 3 repairs: $600 **Expected Cost Calculation for Machine B:** - Expected Repairs Cost = (0 * 0.50) + (200 * 0.25) + (400 * 0.15) + (600 * 0.10) - Expected Total Cost = Fixed Cost + Expected Repairs Cost Make the calculations to provide a definite answer and recommendation.
Transcribed Image Text:**Problem 5: Machine Purchase Decision** A department supervisor is considering purchasing one of two comparable photocopy machines, A or B. Machine A costs $1,000 and includes a service contract that covers any repairs. The repair contract for Machine B costs $350 per year, with additional charges of $200 per repair. Based on past performance, the distribution of the number of repairs needed over any one-year period for Machine B is given below: | Number of Repairs | Probability | |-------------------|-------------| | 0 | 0.50 | | 1 | 0.25 | | 2 | 0.15 | | 3 | 0.10 | **Recommendation Task:** You are asked to give a recommendation based on the overall cost analysis to determine which machine, A or B, along with its repair contract, should be purchased. Provide statistical justification to support your recommendation. **Calculation Breakdown:** - **Machine A:** - Fixed cost: $10,000 (including unlimited repairs). - **Machine B:** - Fixed cost: $1,500 (initial cost) + $350 (annual contract) = $1,850. - Variable cost depends on repairs needed: - 0 repairs: $0 - 1 repair: $200 - 2 repairs: $400 - 3 repairs: $600 **Expected Cost Calculation for Machine B:** - Expected Repairs Cost = (0 * 0.50) + (200 * 0.25) + (400 * 0.15) + (600 * 0.10) - Expected Total Cost = Fixed Cost + Expected Repairs Cost Make the calculations to provide a definite answer and recommendation.
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