The main pump at a chemical plant is prone to breakdowns. Over the past year, it has broken down 21 times. The average costs to repair each breakdown are $150 in parts, $300 in labor and $500 in lost production. The plant is entertaining hiring a preventative maintenance company. This PM company would overhaul the pump once per month, guaranteeing no breakdowns. The PM company would supply the labor and parts, but there would be a short downtime of the pump each month resulting in a lost production cost of $350. The PM company would charge the plant $1500 monthly for this service. Should the chemical plant hire this PM company? Why or why not?

Answer rating: 100% (QA)

Lets first calculate the total costs for the plant if the pump continues to breakdown as observed in ... View the full answer