Loading the lesson
Loading the lesson
Search AllRounder.ai
Search the courses, subjects, tracks, games and features, or jump straight to a page.
Search the courses, subjects, tracks, games and features, or jump straight to a page.
Learn it your way
A short class with Sarah and her students. The other ways are under More.
Sign up free to listen. Transcripts are free to read.
Let's begin with the concept of downtime cost per hour. This is calculated as a percentage of the equipment cost. Can anyone tell me how we compute this?
Is it 3% of the equipment cost?
Exactly! If our equipment cost is 900 rupees per hour, what would be the downtime cost for that hour?
I think it would be 27 rupees.
Right! So, we multiply this by the annual operational time to get yearly downtime costs. How many hours is that in our case?
2000 hours.
Well done! That leads us to a yearly downtime cost of 54,000 rupees for the first year.
Now let's move to the second year. Remember, downtime costs increased to 6%. How would we calculate it?
We still use the same equipment cost of 900 rupees, but calculate 6% of that.
Correct! What is that hourly downtime cost?
That's 54 rupees per hour.
Good job! And if we multiply that by 2000 hours, what do we get for yearly downtime costs?
That’s 1,08,000 rupees.
Perfect! Now let’s add our costs cumulatively. What would the cumulative downtime be at the end of the second year?
162,000 rupees.
Now let’s dive into obsolescence costs. Could anyone remind me what obsolescence cost entails?
It’s about the costs incurred by keeping old technology instead of upgrading.
Exactly! In the second year, what was our obsolescence cost per hour?
It was 45 rupees.
Right! And how do we compute the yearly obsolescence cost for that?
By multiplying 45 rupees by 2000 hours, it would be 90,000 rupees.
Exactly! Similar calculations need to be done for the third year.
Let’s look at the cumulative obsolescence cost. What would be the hourly rate at the end of the third year and why is this important?
It’s important because it helps in determining the effectiveness of keeping the machine longer.
Good point! So what’s our hourly rate in the third year?
It comes out to be 51 rupees.
Correct! And this signifies how maintaining old equipment can lead to increased costs over time.
Finally, what do we mean by economic life of the machine?
It’s the period where the machine’s costs per hour are minimized, indicating when to replace it.
Exactly! Why is this understanding crucial for business operations?
To avoid higher costs when the machine becomes less efficient.
Well summarized! Keeping track of these costs helps in effective management and planning for replacements.
The expense associated with lost productivity due to a machine being out of operation.
The cost incurred from retaining old machines that could perform better with new technology.
Total costs gathered over consecutive years.
The period wherein the operational cost of a machine is at its lowest, pointing to the ideal time for replacement.
For the first year, if a machine incurs 27 rupees per hour in downtime with an operational total of 2000 hours, the total downtime cost would sum to 54,000 rupees.
In the third year, monthly obsolescence coupled with increased operational hours could lead to cumulative costs of up to 216,000 rupees showing why timely replacement is essential.
When the machine costs you dime, replace it on time, don’t let it mime.
There once was a machine who worked hard through its prime but as it aged, it struggled to climb. Soon, it became a burden, but with a new model’s arrival, productivity could thrive!
D.O.E. for downtime - Costs: Downtime costs, Obsolescence costs, Economic life.
D.O.E - Downtime, Obsolescence, Economic life.
Term
What is the downtime cost for the first year?
Click to flip
Term
Define obsolescence cost.
Click to flip
Expenses incurred due to the machine being out of operation.
Costs resulting from holding onto outdated machines that perform below capacity.
The total costs aggregated over a period.
The optimal period for maintaining equipment before replacement becomes economically viable.
This section discusses the calculation of various costs associated with machine downtime and obsolescence over time.
The section elaborates on the computations of downtime costs for machinery across three years, emphasizing the relationship between downtime costs, obsolescence costs, and increased productivity needs. It establishes cumulative costs per hour and identifies the economic life for optimal machine replacement.
In this section, we analyze the costs arising from machine downtime and obsolescence over a three-year period. The downtime cost is calculated as a percentage of equipment cost, where initial costs in the first year are noted at 27 rupees per hour, leading to an annual downtime cost of 54,000 rupees for 2000 operating hours. In the second year, this escalates due to an increase in downtime percentage to 6%, yielding 54 rupees per hour and an annual cost of 1,08,000 rupees. Further calculations reveal cumulative costs for three years.
The analysis then transitions to obsolescence costs, defined as the losses associated with using outdated equipment that underperforms compared to modern alternatives. It is crucial to identify that the economic life of a machine is where cumulative costs per operating hour are lowest, indicating optimal replacement timing. The obsolescence factor increases yearly and correlates with heightened maintenance costs and decreased productivity. The ultimate goal of this cost analysis is to define the economic life of machinery to optimize cost efficiency.