Total Cost of Ownership

Week 4 – Assignment       
       
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.