Fewpal
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The cost of a machine is Rs. 12000. The maintenance cost and resale value per year of the machine is given below.

When should the machine be replace

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Here, purchase price ; P = Rs. 12000 

Let Ci be the maintenance cost during the year and Sn be the resale value. Then, Average annual cost is A(n) =\(\frac{T}{n}\)

Where T = (P – Sn) + ΣC ; and n = no. of years.

Here, Average annual cost A(n) is minimum for n = 3. 

∴ The optimal replacement age is 3 years, 

i. e., The machine should be replaced for every 3 years. 

Minimum annual average cost is Rs. 3600.

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