A2Z p.l.c. supports the concept of terotechnology or life cycle costing for new investment decisions covering...

 

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A2Z p.l.c. supports the concept of terotechnology or life cycle costing for new investment decisions covering its engineering activities. The financial side of this philosophy is now well established and its principles extended to all other areas of decision making. The company is to replace a number of its machines and the Production Manager is torn between the Exe machine, a more expensive machine with a life of 12 years, and the Wye machine with an estimated life of 6 years. If the Wye machine is chosen it is likely that it would be replaced at the end of 6 years by another Wye machine. The pattern of maintenance and running costs differs between the two types of machine and relevant data are shown below. Purchase price Trade-in value Annual repair costs Overhaul costs Estimated financing costs averaged over machine life Exe (£) 19 000 3 000 2 000 4 000 (at year 8) 10% p.a. Wye 13 000 3 000 2 600 2000 (at year 4) 10% p.a. You are required to (a) recommend, with supporting figures, which machine to purchase, stating any assumptions made; (10 marks) (b) describe an appropriate method of comparing replacement proposals with unequal lives; (4 marks) (c) describe life cycle costing and give the benefits that are likely to accrue from its use. Support your answer with examples of changes in practice that could occur from adopting this philosophy. (6 marks) A2Z p.l.c. supports the concept of terotechnology or life cycle costing for new investment decisions covering its engineering activities. The financial side of this philosophy is now well established and its principles extended to all other areas of decision making. The company is to replace a number of its machines and the Production Manager is torn between the Exe machine, a more expensive machine with a life of 12 years, and the Wye machine with an estimated life of 6 years. If the Wye machine is chosen it is likely that it would be replaced at the end of 6 years by another Wye machine. The pattern of maintenance and running costs differs between the two types of machine and relevant data are shown below. Purchase price Trade-in value Annual repair costs Overhaul costs Estimated financing costs averaged over machine life Exe (£) 19 000 3 000 2 000 4 000 (at year 8) 10% p.a. Wye 13 000 3 000 2 600 2000 (at year 4) 10% p.a. You are required to (a) recommend, with supporting figures, which machine to purchase, stating any assumptions made; (10 marks) (b) describe an appropriate method of comparing replacement proposals with unequal lives; (4 marks) (c) describe life cycle costing and give the benefits that are likely to accrue from its use. Support your answer with examples of changes in practice that could occur from adopting this philosophy. (6 marks)

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Year 6 D 7 3 9 0 1 2 3 4 5 0 1 2 3 4 5 6 7 8 9 10 11 12 Machine exe Working no... View the full answer