Is overage service equipment more cost saving than high speed machine?


Which machine is more economical?    Some decision making people in enterprises may believe that the overage machine is more cost saving than new high speed one who think wrongly that the old machine saves the depreciation cost. But as we know that labor cost, depreciation, energy cost and maintenence fee are often take 80% of the operational cost and the four costs are often identical. So when we save the depreciation fee, we waste the other 3 costs at the same time which results that the operational cost using new devices is less than those using overaged one.

    From the perspective of labor cost, every year it increases in a specific percentage. And for the seemingly unchanged depreciation, using NPV (Net present value), it decreases with the passage of time.

    LOW SPEED (4500 packages per hour) machine in the left table is overaged one without depreciation anymore. HIHG SPEED (9000 packages per hour) machine has an additional replacement fee which is 3.2 million. And the currency unit in the left table is 10 thounds with the result that 3.2 million displays as 320 for example.

    The comparison conditions are as the followings,

     Maintenance fee for LOW SPEED is 4.6 and 6.6 for HIGH SPEED per 1000 running hours. Every year the running hours are 5000 hours. And the oerational cost divided by system cost is about 13%. Cost per package is 1.9. Margin per package is 5%. The cost in this processing unit takes 0.25 of the total plant cost. Salary increase rates per year is 10%. Business tax rate is 15%. NPV factor is 10%.

    Then we have the calculation summarised as the left table. We can see that the absolute saving using high speed new machine is about 87million $ in 10 production year with a 16% saving than overaged one.