A Manufacturing Plant Is Planning to Replace Outdated Equipment with More

Essay

A manufacturing plant is planning to replace outdated equipment with more energy- efficient and environmental- friendly equipment. Two models are under
consideration. Model A is sold for $159,000 and can produce at an optimum speed of 78 unit/hour. Model B is sold for the same price, but can produce at an optimum speed of 76 unit/hour. Model A requires 6 hours of maintenance for every 4300 units produced, while Model B requires 5 hours of maintenance for every 3300 units. The maintenance cost for both models is $100 per hour. The variable operating cost is $340 per hour for Model A and $290 per hour for Model B. Due to obsolete parts, there is a sunk cost of $2700 for model A and $1900 for Model B . If the price of the product is $150 per unit and the company expects to sell 145,000 units each year, which model should be selected?