Question

An automobile firm wants to purchase either machine A or machine B. The intial cost of machines A and B are $40,000 and $50,000, respectively. The power consumption per year of machines A and B are 120 MWh and 100 MWh, respectively. The power cost is $40/MWh. The estimated life of both machines is 10 ye $20,000 for machine B. According to the life-cycle costing approach, the overall cost of machines A and B are:
A. $88,000 and $98,000, respectively
B. 875,000 and $70,000, respectively
C. $118,000 and $110,000, respectively
D. $74,800 and $79,000, respectively
E. $110,000 and $120,000, respectively.

Answer 1

Answer:

C. $118,000 and $110,000, respectively.

Step-by-step explanation:

Please consider the complete question.

An automobile firm wants to purchase either machine A or machine B. The intial cost of machines A and B are $40,000 and $50,000, respectively. The power consumption per year of machines A and B are 120 MWh and 100 MWh, respectively. The power cost is $40/MWh. The estimated operating and maintenance cost over 10 years is $30,000 for machine A and $20,000 for machine B.

First of all, we will find the amount spent on power consumption for 10 years by each machine as:

$\text{Machine A}=10\cdot 120(\ 40)\\\text{Machine A}=\ 48,000$

$\text{Machine B}=10\cdot \ 100(\ 40)\\\text{Machine A}=\ 40,000$

Now, we will find overall cost of machines A and B by adding initial cost, power consumption for 10 years and maintenance cost as:

$\text{Overall cost of machine A}=\ 40,000+\ 48,000+\ 30,000$

$\text{Overall cost of machine A}=\ 118,000$

$\text{Overall cost of machine B}=\ 50,000+\ 40,000+\ 20,000$

$\text{Overall cost of machine B}=\ 110,000$

Therefore, the overall cost of machines A and B are $118,000 and $110,000, respectively and option C is the correct choice.