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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