Question

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Williams Auto has a machine that installs tires. The machine is now in need of repair. The machine originally cost $10,300 and the repair will cost $1,300, but the machine will then last two years. The labor cost of operating the machine is $0.50 per tire. Instead of repairing the old machine, Williams could buy a new machine at a cost of $5,300 that would also last two years, the labor cost would then be reduced to $0.30 per tire. Williams expects to install 10.300 tires in the next two years. a. Determine the total (two-years) cost for both repairing and replacing the machine. Total cost to repair Total cost to replace b. Should Williams repair or replace the machine? Repair Replace

Answer 1

Solution a:

Total cost to repair = Repair cost + Labor cost for installation = $1,300 + (10300*$0.50) = $6,450

Total cost to replace = New machine cost + Labor cost for installation = $5,300 + (10300*$0.30) = $8,390

Solution b:

Williams should repair the machine.