Company X has been unable to keep up with customer demands for product Y. They are considering two options. The first is to replace the existing tooling machine with a new machine or start a second shift to increase throughput. The cost of the new machine is $500,000. The cost of ramping up the second shift is 150,000. With the new machine option, there is a 60 percent opportunity of generating 750,000 in revenue. There is also a 40 percent opportunity of making $200 in revenue. With the second shift option, there is a 50 percent opportunity to generate $400,000 of revenue and a 50 percent opportunity to generate $100,000 of revenue. Which option would you recommend?
Company X has been unable to keep up with customer demands for product Y. They are considering two options. The first is to replace the existing tooling machine with a new machine or start a second shift to increase throughput. The cost of the new machine is $500,000. The cost of ramping up the second shift is 150,000. With the new machine option, there is a 60 percent opportunity of generating 750,000 in revenue. There is also a 40 percent opportunity of making $200 in revenue. With the second shift option, there is a 50 percent opportunity to generate $400,000 of revenue and a 50 percent opportunity to generate $100,000 of revenue. Which option would you recommend?
Given:
# Replace existing machine with a new one:
- cost of the new machine is $500,000
- 60 percent opportunity of generating 750,000 in revenue. There is also a 40 percent opportunity of making $200 in revenue
# start a second shift
- cost of ramping up the second shift is 150,000
- 50 percent opportunity to generate $400,000 of revenue and a 50 percent opportunity to generate $100,000 of revenue
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