Question

In: Finance

Scenario The Department of Technology is planning to replace the packaging machine in the graphic communication...

Scenario

The Department of Technology is planning to replace the packaging machine in the graphic communication lab in the Spring of 2021. The one currently in use was purchased from ESKO in 2011 for $100,000. The installation of the machine was done by the facility department on campus with a price tag of $5,000, including the labor and all the necessary harness. The new machine to be purchased has a cutting table doubles the size of the old one, with a throughput capacity four times of the old machine.

Q1. According to the vendor, ESKO, the price for the new machine for academic usage is directly related to the machine’s throughput capacity (not its physical size). If the cost-capacity factor between 2011 and 2021 is 0.85, what will be the estimated purchase price of the new machine?

Hint. No cost indexing information is needed here as the vendor has already incorporated the time-related cost change into the price they charge for the new machine.

Q2. In order to estimate the cost of operations, the graphic communication area coordinator needs to estimate the time of usage in the class setting. If it takes 45 minutes to set up and finish cutting the first box, and the learning curve slope is 0.75 according to the past experience, how long will it take to set up and finish cutting the third box?

Solutions

Expert Solution

ANSWER 1

Price in 2011= $ 100000 (excluding cost of installation)

Troughput Capacity = 4 times

Cost Capacity Factor =0.85

So, Cost of New Machine = Cost of old Machine ( Throughput Capacity of New Machine/ Troughput Capacity of Old Machine)*0.85

=100000(4/1)*0.85

= $ 340000

ANSWER 2

Learning Curve

Time taken for 1st Unit 45 Minutes

Learning Curve Slope = 75%

Formula = Tn =T1n^b

where n = unit number

T1= amount of time to produce Ist unit

b = Learning Curve Factor ie calculated as In(P)/In(2) where In(X) is natural Log of X

Here b= -0.415

So, Time Taken For 1st Unit 45 Minutes,

Time taken for IInd Unit 33.75 Minutes

Time Taken For Third Unit = 28.52 Minutes

Cumulative Time to Set and finish 3 boxes = 107.27 Minutes

jeff jeffy answered 2 years ago
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