A manager must decide which type of machine to buy, A, B, or C. Machine costs are as follows:
| Machine |
Cost |
| A |
$40,000 |
| B |
$30,000 |
| C |
$80,000 |
Product forecasts and processing times on the machines are as follows:
|
|
Processing |
time per unit |
(minutes) |
| Product |
Annual Demand |
A |
B |
C |
| 1 |
16,000 |
3 |
4 |
2 |
| 2 |
12,000 |
4 |
4 |
3 |
| 3 |
6,000 |
5 |
6 |
4 |
| 4 |
30,000 |
2 |
2 |
1 |
a. Assume that only purchasing costs are being considered. Which machine would have the lowest total cost, and how many of that machine would be needed? Machines operate 10 hours a day, 250 days a year.
b. Consider this additional information: The machines differ in terms of hourly operating costs: The A machines have an hourly operating cost of $10 each, B machines have an hourly operating cost of $11 each, and C machines have an hourly operating cost of $12 each.
Which alternative would be selected, and how many machines, in order to minimize total cost while satisfying capacity processing requirements?