Question

Williams Auto has a machine that installs tires. The machine is now in need of repair. The machine originally cost $10,100 and the repair will cost $1,100, but the machine will then last two years. The labor cost of operating the machine is $0.40 per tire. Instead of repairing the old machine, Williams could buy a new machine at a cost of $5,100 that would also last two years; the labor cost would then be reduced to $0.20 per tire. Williams expects to install 10,100 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? O Repair O Replace

Answer 1

А B с 1 a) 2 3 Total cost to repair $ 5,140 4 Total cost to replace $ 7,120 5 6 Working note: 7 Repair Replace 8 Repair costs $ 1,100 9 Cost of new machine $ 5,100 10 Operating costs $4,040 $ 2,020 11 Total costs $ 5,140 $ 7,120 12 13 b) 14 Cost of repair is less than the cost to replace, hence 15 Williams should repair the machine.

A B с =+B11 =+C11 1 a) 2 3 Total cost to repair 4 Total cost to replace 5 6 Working note: 7 8 Repair costs 9 Cost of new machine 10 Operating costs 11 Total costs Repair Replace 1100 5100 =0.4*10100 =0.2*10100 =+B8+B10 =+C9+C10 =+