A machine needs to be immediately replaced in a certain manufacturing facility, as the machine downtime costs are $2,000 per hour. The supply manager looking to purchase a machine was evaluating two alternatives.

Machine A

Machine B




Delivery time

50 days

45 days

Downtime costs

$2,000 / hour

$ 2,000 / hour

  1. Calculate the lost revenue based on delivery time difference and downtime costs, considering the machines will run 8 hours a day / 7 days a week.
    1. Based on your results, what is the best alternative and why? Explain quantitively.
    2. Consider now a different scenario. You have acquired Machine B, but just realized the production capacity of machine A is 10% higher. Your demand forecast has been stable, until your part sales have suddenly increased from $10,000 to $11,000 per day.
      1. Considering you have acquired machine B, what would be the daily lost revenue in sales during a 15 days period?
      2. Considering lost sales in a 15-day period against lost revenues based on delivery time (question a), would you still have acquired machine B? Why?
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