ing the component (option B). Details of the two options are given below: Option A : Three machines X,Y, and Z are needed to produce the component with initial costs of $100,000, $120,000, and $140,000 respectively. Salvage values for X,Y, and Z are $20,000, $30,000, and $40,000. Since the produ
A company’s demand for a given component for the next 10 years is expected to be 1800/year.
They have two options to have the component available for their production requirements, buying (option A) or making the component
(option B). Details of the two options are given below:
Option A : Three machines X,Y, and Z are needed to produce the component with initial costs of $100,000, $120,000, and $140,000 respectively. Salvage values for X,Y, and Z are $20,000, $30,000, and $40,000. Since the production process will continue for 10 years, an additional unit of any machine will be available for the same price (initial cost) , when needed, and will have the same salvage value at the end of its useful life. Useful lives are 10,5,10 years for machines X,Y, and Z respectively. A total production costs per year is estimated to be $80,000/year.
Option B: Buying the component for $100 and saving an amount of $50000/year from utilizing the saved space for different purposes.
Use i= 10% to find the optimal solution.
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