Page 213 - DCOM303_DMGT504_OPERATION_RESEARCH

Operations Research

Notes Solution:
n Rn Rn C – S Pn Average cost
1 1,000 1,000 3,000 4,000 4,000
2 1,200 2,200 4,500 6,700 3,350
3 1,400 3,600 5,250 8,850 2,950
4 1,800 5,400 5,625 11,025 2,756.25
5 2,300 7,700 5,800 13,500 2,700
6 2,800 10,500 5,800 16,300 2,716.67
7 3,400 13,900 5,800 19,700 2,814.28
8 4,000 17,900 5,800 23,700 2,962.05

Inference

The machine has to be replaced at the end of the 5th year or at the beginning of the 6th year as the
maintenance cost of the 6th year becomes higher than the average cost of maintaining the
machine at the end of the 5th year.

Self Assessment

7. A firm is considering replacement of a machine whose cost is ` 12, 200 and scrap value is
` 200. The maintenance costs are found from experience to be as follows:

Year 1 2 3 4 5 6 7 8
Maintenance cost (`) 200 500 800 1,200 1,800 2,500 3,200 4,000

When should the machine be replaced?

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a. At the end of 6 year or beginning of 7 year
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b. At the end of 4 year
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c. At the end of 8 year
d. At the beginning of 5 year
th

Task The following table gives the running costs per year and resale price of a certain
equipment. Its purchase price is ` 5,000
Year 1 2 3 4 5 6 7 8
Running costs (Rs.) 1,500 1,600 1,800 2,100 2,500 2,900 3,400 4,000
Resale value (Rs.) 3,500 2,500 1,700 1,200 800 500 500 500

At what year the replacement is due?

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