Date post: | 05-Apr-2018 |
Category: |
Documents |
Upload: | babasab-patil-karrisatte |
View: | 224 times |
Download: | 0 times |
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 1/16
Replacement TheoryModule 6
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 2/16
replacement
•
The problem of replacement is felt when the jobperforming units such as
• men
• Machine
• Equipments
• Parts etc.. Become less effective or useless due to eithersudden or gradual deterioration in their efficiency, failure orbreakdown
• By replacing them with new ones at frequent intervalsmaintenance and other overhead cost can be reduced
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 3/16
Types of failure
• There are two types of failure• Gradual failure
• Sudden failure
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 4/16
Gradual failure cases
• Increased running costs ( maintenance +operating cost)
• Decrease in productivity
• Decrease in the resale or salvage value
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 5/16
Sudden failure cases
• This type of failure occurs in items aftersome period of giving desired service ratherthan deteriorating while in service
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 6/16
Replacement of items whoserunning cost increases with timeand value of money remains
constant during a period
MODEL 1
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 7/16
ATCn = TC/n
Where TC = C-S+ Σ R(n)Where n = Replacement age of equipment
C = Capital or purchase cost of equipmentS = Scrap (salvage ) value of the equipment at the end of t years
R(n) = Running cost of the equipment
TC = Total CostATC = Average Total Cost
After determining the ATCn find out which year the value of ATCn isminimum which means it is the appropriate time for replacement
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 8/16
E.g.:
1. A firm is considering replacement of a machine,whose cost price is Rs 12,200, and the scrap valueRs 200.The running( maintenance and operating)costs are found from the experience to be as
follows:Year 1 2 3 4 5 6 7 8
Running cost(Rs)
200 500 800 1200 1800 2500 3200 4000
When the machine should be replaced?
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 9/16
Soln.Year ofservice
n
Runningcost R(n)
(Rs)
Cumulativerunning cost
ΣR(n)(Rs)
Depreciation cost
C-S
(Rs)
Total Cost
TC
(Rs)
Average Cost
ATCn
(Rs)
1 200 200 12000 12200 12000
2 500 700 12000 12700 6350
3 800 1500 12000 13500 45004 1200 2700 12000 14700 3675
5 1800 4500 12000 16500 3300
6 2500 7000 12000 19000 3167
7 3200 10200 12000 22200 3171
8 4000 14200 12000 26200 3275
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 10/16
MODEL 2
Replacement policy for items whoserunning cost increases with time but
value of money changes withconstant rate during the period
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 11/16
100
100+r d=
Where d is the discount rate or depreciation valuer is the rate of change
n
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 12/16
E.g.:• Let the value of the money be assumed to be 10 per
cent per year and suppose that machine A isreplaced after every 3 years where as machine B isreplaced after every 6 years. the yearly cost (In Rs)of both the machines are given as under:
Year 1 2 3 4 5 6
MachineA
1000 200 400 1000 200 400
MachineB
1700 100 200 300 400 500
Determine which machine should be purchased?
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 13/16
The discounted cost (present worth) at 10 percent ratefor machine A and machine B is given below
Discounted cost of Machine A
Year Discounted cost at 10% rate (Rs)
Cost present worth
1 1000 1*1000 1000.00
2 200 200* ( 100/(100+10) 181.82
3 400 400*(100/100+10)2 330.56
=0.9091
Total Rs 1512.38
Hence the average yearly cost of machine A is 1512.38/3=Rs 504.13
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 14/16
Discounted cost of machine B
Year Discounted cost at 10% rate(Rs)
cost Present Worth1 1700 1700*1 1700.00
2 100 100*0.9091 90.91
3 200 200*0.8264 165.28
4 300 300*0.7513 225.395 400 400*0.6830 273.20
6 500 500*0.6209 310.45
Total Rs 2765.23
The average yearly cost of machine B is 2765.23/6=Rs 460.87
7/31/2019 Replacement Theory MAB PPT
http://slidepdf.com/reader/full/replacement-theory-mab-ppt 15/16
• With the data on average yearly cost of bothmachines , the apparent advantage is in purchasingmachine B .but the periods for which the costs areconsidered are different .
• There fore , let us first calculate total present worthof machine A for 6 years
• Total present worth=1000+200*0.9091+400*0.8264+1000*0.7513+200*0.6830+400*0.6209=Rs 2648.64
• Which is less than the total present worth ofmachine B .
• Thus machine A should be purchased