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Management Studies

A manufacturing company is considering purchasing a 10 HP electric motor which it estimates will run an average of 6 hours per day for 250 days per year.

Past experience indicates that:

(1) its annual cost for taxes and insurance averages 2.5% of first cost,

(2) it must make 10% on invested capital before income tax considerations, and

(3) it must recover capital invested In machinery within 5 years.

Two motors are offered to the company. Motor A. costs $340 and has a guaranteed efficiency of 85% at the indicated operating load. Motor B costs $290 and has a guaranteed efficiency of 80% at the same operating load.

Electric energy costs the company 2.3 cents per KW-hr. Calculate the annual cost of each motor and indicate which motor should be purchased.

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92685882

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