a.

To determine the machine that would have the lowest total cost based on purchasing
costs only, we need to calculate the annual cost of each machine based on the expected
life of the machine and the demand for each product.

Machine A: Total cost = (Cost of machine) + (Annual operating hours) * (Cost per hour) /
(60 minutes/hour) * (Processing time per unit) * (Annual demand for product) Total cost
= ($48,000) + (10 hours/day) * (250 days/year) * ($0/hour) / (60 minutes/hour) * (16,000
minutes/unit) * (3 + 4 + 5 + 2) Total cost = $48,000 + $10,666,667 = $10,714,667

Machine B: Total cost = (Cost of machine) + (Annual operating hours) * (Cost per hour) /
(60 minutes/hour) * (Processing time per unit) * (Annual demand for product) Total cost
= ($35,000) + (10 hours/day) * (250 days/year) * ($0/hour) / (60 minutes/hour) * (3
minutes/unit) * (16,000 + 12,000 + 6,000 + 30,000) Total cost = $35,000 + $14,500,000
= $14,535,000

Machine C: Total cost = (Cost of machine) + (Annual operating hours) * (Cost per hour) /
(60 minutes/hour) * (Processing time per unit) * (Annual demand for product) Total cost
= ($80,000) + (10 hours/day) * (250 days/year) * ($0/hour) / (60 minutes/hour) * (2 + 3 +
4 + 1) minutes/unit) * (16,000 + 12,000 + 6,000 + 30,000) Total cost = $80,000 +
$16,400,000 = $16,480,000

Therefore, the machine with the lowest total cost based on purchasing costs only is
Machine A, and we would need 3 machines to satisfy the demand for all products.

b. To determine the machine and quantity that would minimize the total cost while
satisfying capacity processing requirements, we need to consider both the purchasing
costs and the hourly operating costs of each machine.

Let X be the number of Machine A, Y be the number of Machine B, and Z be the number
of Machine C.

We want to minimize the total cost, which is the sum of the purchasing costs and the
operating costs.

Total cost = (Cost of Machine A * X) + (Cost of Machine B * Y) + (Cost of Machine C * Z)

+ (Operating cost of Machine A * X * Annual operating hours) + (Operating cost of
Machine B * Y * Annual operating hours) + (Operating cost of Machine C * Z * Annual
operating hours)

subject to the following constraints:

Processing time per unit * Annual demand for product <= (Annual operating hours) *
(60 minutes/hour) X, Y, Z are non-negative integers

Using the data provided, we can set up the following linear programming problem:

Minimize: 48,000X + 35,000Y + 80,000Z + 10X(10 hours/day)(250 days/year)($10/hour)

+ 12.5Y(10 hours/day)(250 days/year)($12.5/hour) + 10.5Z(10 hours/day)(250 days/year)
($10.5/hour)

Subject to: 16,000X + 3Y + 4Z <= 10