Nether Fales, a reliability engineer, must decide which of two components to use in the design...
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Nether Fales, a reliability engineer, must decide which of two components to use in the design of a new product. According to the supplier, component A has a unit cost of $225 and a Weibull failure distribution with a shape parameter of 1.7 and a char- acteristic life of 12 yr. Component B has a unit cost of $245 and a constant failure rate of 0.11 failures per year according to the manufacturer's specifications. A failure of either component results primarily in the replacement of a comparable (same age) part. The average part cost of component A is $40, and that of component B is $35. In addition, if component A is selected, a special test unit must be purchased at a cost of $4300 to be used in identifying the failed part. The product will have a 10-yr design life, at the end of which component A has a salvage value of $60 and component B has a salvage value of $40. Operating costs and other support costs are the same for either component. If 100 units of the product are to be manufactured, determine which component to use in the design of the product by comparing the life-cycle costs. Assume a 5 percent effective discount rate. Nether Fales, a reliability engineer, must decide which of two components to use in the design of a new product. According to the supplier, component A has a unit cost of $225 and a Weibull failure distribution with a shape parameter of 1.7 and a char- acteristic life of 12 yr. Component B has a unit cost of $245 and a constant failure rate of 0.11 failures per year according to the manufacturer's specifications. A failure of either component results primarily in the replacement of a comparable (same age) part. The average part cost of component A is $40, and that of component B is $35. In addition, if component A is selected, a special test unit must be purchased at a cost of $4300 to be used in identifying the failed part. The product will have a 10-yr design life, at the end of which component A has a salvage value of $60 and component B has a salvage value of $40. Operating costs and other support costs are the same for either component. If 100 units of the product are to be manufactured, determine which component to use in the design of the product by comparing the life-cycle costs. Assume a 5 percent effective discount rate.
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To determine which component to use in the design of the product we need to compare the lifecycle costs of both components considering the initial cos... View the full answer
Related Book For
Cost Management Accounting and Control
ISBN: 978-0324559675
6th Edition
Authors: Don R. Hansen, Maryanne M. Mowen, Liming Guan
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