Three models of gear knob will be manufactured in a new plant in Durian Tunggal, Melaka. Each gear knob requires some manufacturing time at either Lathe A or Lathe B, as shown in Table 2. The plant will operate 3,000 hours per year. Machine availability is 80% for Lathe A and 90% for Lathe B. Annual operating expenses are based on an assumed operation of 3,000 hours per year, and workers are paid during any idle time of Lathe A and Lathe B. Upper management has decided that MARR is 10% per year. For the first alternative, Lathe A, it will cost RM50,000 per lathe, with a useful service life of seven years with an estimated salvage value of RM10,000. The second option is Lathe B, where the company needs to purchase for RM80,000 per lathe with useful service life of ten years with an estimated salvage value of RM12,000. Annual operating cost for Lathe A will cost RM2,000 for the first year and increase RM500 every year. Lathe B has greater operating cost with RM4,000 per year but only will start at third year and then decreased RM400 every year. Evaluate which type of lathe to be purchased by the company. (20 marks) Table 2: Machining Hours for Gear Knob Production PRODUCT LATHE A (HOUR) LATHE B (HOUR) Wood gear knob 1 600 1 100 Aluminium gear knob 1 800 1 200 Plastic gear knob 2 600 2 400 Three models of gear knob will be manufactured in a new plant in Durian Tunggal, Melaka. Each gear knob requires some manufacturing time at either Lathe A or Lathe B, as shown in Table 2. The plant will operate 3,000 hours per year. Machine availability is 80% for Lathe A and 90% for Lathe B. Annual operating expenses are based on an assumed operation of 3,000 hours per year, and workers are paid during any idle time of Lathe A and Lathe B. Upper management has decided that MARR is 10% per year. For the first alternative, Lathe A, it will cost RM50,000 per lathe, with a useful service life of seven years with an estimated salvage value of RM10,000. The second option is Lathe B, where the company needs to purchase for RM80,000 per lathe with useful service life of ten years with an estimated salvage value of RM12,000. Annual operating cost for Lathe A will cost RM2,000 for the first year and increase RM500 every year. Lathe B has greater operating cost with RM4,000 per year but only will start at third year and then decreased RM400 every year. Evaluate which type of lathe to be purchased by the company. (20 marks) Table 2: Machining Hours for Gear Knob Production PRODUCT LATHE A (HOUR) LATHE B (HOUR) Wood gear knob 1 600 1 100 Aluminium gear knob 1 800 1 200 Plastic gear knob 2 600 2 400
