Question

owner is, not only going to reward you with the grand prize of $1000 plus 1% royalties, is offering a minority stake in the sandwich shop if you will assist her in determining the total cost of ownership of a new panini sandwich oven that she just purchased. She is second-guessing her decision because a new vendor, Prince Panini, has stated she paid way too much and the TCO of his machine over 3 years is far less.

1. Identify and explain the top 5 largest or most impactful costs you believe should be accounted for in your TCO model.

2. Though not necessarily the largest or most impactful costs, what 2 costs would you recommend that the owner ensure she should ask for from Prince Panini and explain why you believe these are important for her to understand. [Think of costs that might seem hidden or not readily considered.]

Answer 1

Answer 1:

The top 5 largest or most powerful cost that should be accounted for in the TCO model are:

1. Cost of oven

2. Cost of components of the oven

3. Cost of shipping charges of the components of oven

4. Cost of installation of the oven in the plant

5. Wages for installation of the oven

Cost of oven is the direct cost that the owner of the company has been charged with.

Cost of components of oven is the direct cost and it includes all the parts that are required to assemble the big oven in the company’s facility.

Cost of shipping charges of the oven is the indirect cost that has been charged by the logistic agent to the owner so as to bring the oven into the facility of the owner.

Cost of installation of oven is the direct cost that the owner is supposed to bear during the installation process.

Wages for installation of the oven are the indirect cost that the owner would pay to the labours who installs the oven.

Answer 2:

Owner should ask Prince Panini about the cost of components of the oven and cost of installation of oven in the facility. These are the charges that are usually taken for granted and are hidden in nature. These costs are never considered while making the purchase of the product. Owner should ask Prince Panini to consider these costs as well while calculating the cost of the oven.