Your company presently uses a crew of its own employees for all major maintenance. On average, 40 major repairs are performed each year at 24 lost production hours per repair. Keeping the crew costs $1,000,000 per year plus any lost production cost. Lost production costs are estimated at $2,500 per hour. Your company is considering replacing its in-housemaintenance work with an outside company (Ajax) working under an annual maintenance contract. This proposal will pay Ajax $2,000,000 per year but your company will still have to pay for all lost production time.Ajax claims that the time per repair will decrease because of the contractors’ substantial maintenance experience. Assuming the number of major repairs and the cost of lost production time remain the same, how much time per repair is the maximum allowable for Ajax to be the preferred alternative?
Your company presently uses a crew of its own employees for all major maintenance. On average, 40 major repairs are performed each year at 24 lost production hours per repair. Keeping the crew costs $1,000,000 per year plus any lost production cost. Lost production costs are estimated at $2,500 per hour. Your company is considering replacing its in-house
maintenance work with an outside company (Ajax) working under an annual maintenance contract. This proposal will pay Ajax $2,000,000 per year but your company will still have to pay for all lost production time.
Ajax claims that the time per repair will decrease because of the contractors’ substantial maintenance experience. Assuming the number of major repairs and the cost of lost production time remain the same, how much time per repair is the maximum allowable for Ajax to be the preferred alternative?
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