BUS. 640: Managerial Economics
March 19, 2011
Should we buy a new machine or upgrade the old one? One of the managerial decisions that our local hospital had to make was whether to transition into a digital format with our portable x-ray machines by performing transformation upgrades to both existing analog units or to trade them in and use their value to offset the total price incurred by the purchase of new units. This paper will discuss several factors that may affect the decision making process, along with a preliminary analysis of the problem through the use of marginal analysis.
The decision to purchase a new system or to upgrade the existing x-ray machine, the hospital administration must consider the lowest cost for the hospital. By minimizing the cost for the x-ray machine the hospital will lower cost for the patients and the community that it serves.
The current x-ray machine flat value would be $12,000 each. Each day the hospital uses the current machines to make 8.5 x-rays per day. The average revenue for each x-ray is $65.00. The hospital calculates the revenue of the machines by multiplying the number of x-rays by the revenue ($65.00 x 8.5 = $553 per day). Looking at the total revenue for the year, $553 per day x 365, the hospital sees revenue of $201845 per year.
Cost consideration #1
The administration first looked at the cost of upgrading the existing x-ray machines. The cost to upgrade (2) GE AMX 4 Plus Portable X-ray Units is $88,000 each. The upgrade utilizes the existing units transport mechanism, battery pack and charging components, the current x-ray generator and x-ray tube. When the reconditioning is complete, each unit will perform the same task as a new digital unit manufactured by GE. However, there is no warranty on the upgraded system outside of the actual work performed....