Total Cost of Ownership
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Total Cost of Ownership
The production manager has asked you to purchase a replacement numerically controlled (NC) plasma-cutting machine for the metal fabrication shop. She has provided you with the manufacturer’s number and model number for two models and indicates that the performance of either machine is perfectly acceptable. The existing tooling and fixtures will also work with either machine. Footprint and utility requirements are nearly the same as the old machine and will not require changes to the facility. The equipment will be depreciated over a ten-year period, which is also the expected service life. An annual service contract is required after the expiration of the warranty and throughout the remaining service life. You will take advantage of a 2% discount offered by each supplier for paying cash. You decide to complete a total cost of ownership (TCO) analysis to help make the purchasing decision.
The two manufacturers have provided the following additional information:
|
|
Cuts All Model 10 |
Super-Hot Model Z2 |
|
Base price |
$79,000 |
$68000 |
|
Freight/Delivery |
$3,000 |
$2,200 |
|
Warranty |
5 years |
3 years |
|
Annual service contract |
$759 |
$632 |
|
Consumables cost per year |
$522 |
$630 |
|
Annual electric cost |
$444 |
$520 |
|
Annual water cost |
$230 |
$180 |
|
Operator training |
$300 |
Included |
|
Residual value after 10 years |
$39,000 |
$21,000 |
Submit a MS Excel spreadsheet that calculates the total cost of ownership of each machine. Based on the TCO calculation, specify which model you recommend purchasing.
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