Question: Three models of baseball bats will be manufactured in a new plant in Pulaski. Each bat requires some manufacturing time at either Lathe 1 or Lathe 2, according to the following table. Your task is to help decide which type of lathe to install. Show and explain all work to support your recommendation.
The plant will operate 3,000 hours per year. Machine availability is 85% for Lathe 1 and 90% for Lathe 2. Scrap rates for the two lathes are 5% versus 10% for L1 and L2, respectively. Cash flows and expected lives for the two lathes are given in the table below. Annual operating expenses are based on an assumed operation of 3,000 hours per year, and workers are paid during any idle time of L1 and L2. Upper management has decided that MARR = 18% per year.
a. How many type L1 lathes will be required to meet the machine-hour requirement?
b. What is the CR cost of the required type L2 lathes?
c. What is the annual operating expense of the type L2 lathes?
d. Which type of lathe should be selected on the basis of lowest total equivalent annual cost?