REPLACEMENT THEORY PROBLEMS
REPLACEMENT OF ITEMS WHOSE EFFICIENCY DETERIORATES WITH TIME
Model 1: Replacement Policy for items whose running cost increases with time and value of money
remains constant during a period.
1. A firm is considering the replacement of a machine, whose cost price is Rs 12,200, and its scrap value
is Rs 200. From experience the running (maintenance and operating) costs are found to be as follows:
Year 1 2 3 4 5 6 7 8
Running cost (₹) 220 500 800 1,200 1,800 2,500 3,200 4,000
When should the machine be replaced?
2. The cost of a machine is ₹61000 and its scrap value is ₹ 1000. The maintenance cost found from past
experience are as follows. When should the machine be replaced?
Year 1 2 3 4 5 6 7 8
Maintenance cost (₹) 1000 2500 4000 6000 9000 12000 16000 20000
3. The maintenance cost and resale value per year of a machine whose purchase price is ₹ 7000 is given
below. When should the machine be replaced?
Year 1 2 3 4 5 6 7 8
Maintenance cost (₹) 900 1200 1600 2100 2800 3700 4700 5900
Resale Value (₹) 4000 2000 1200 600 500 400 400 400
4. The following table gives the running costs per year and resale price of a certain equipment whose
purchase price is ₹5000. When should the machine be replaced?
Year 1 2 3 4 5 6 7 8
Running cost (₹) 1500 1600 1800 2100 2500 2900 3400 4400
Resale Value (₹) 3500 2500 1700 1200 800 500 500 500
5. A manufacturer is offered two machines A and B. Machine A is priced at ₹5,000 and its running costs
are estimated at ₹ 800 for each of the first five years increasing by ₹ 200 per year in the sixth and
subsequent years. Machine B that has the same capacity as A, costs ₹2,500 but would have running
costs of ₹1,200 per year for six years, increasing by ₹200 per year thereafter. If money is worth 10 per
cent per year, which machine should be purchased? (Assume that the machine will eventually be sold
for scrap at a negligible price).
6. Assume that present value of one rupee to be spent in a year’s time is ₹0.90 and the purchase price is
₹3000. The running cost of the equipment is given in the table below. When should the machine be
replaced?
Year 1 2 3 4 5 6 7
Maintenance cost (₹) 500 600 800 1000 1300 1600 2000
7. Assume that present value of one rupee to be spent in a year’s time is ₹0.90 and the purchase price is
₹5000. The running cost of the equipment is given in the table below. When should the machine be
replaced?
Year 1 2 3 4 5 6 7
Maintenance cost (₹) 400 500 700 1000 1300 1700 2100
8. A system consists of 10000 electric bulbs. When any bulb fails, it is replaced immediately and the cost
of replacing a bulb individually is ₹1 only. If all the bulbs are replaced at the same time, the cost per
bulb will be ₹0.35. The percent surviving i.e., S (t) at the end of month ‘t’ and P (t) the probability of
failure during the month ‘t’ are as given below. Find the optimum replacement policy.
‘t’ in Months 0 1 2 3 4 5 6
S (t) 100 97 90 70 30 15 0
P (t) - 0.03 0.07 0.20 0.40 0.15 0.15
9. A computer has 20,000 resistors. When any of the resistors fails, it is replaced. The cost of replacing a
resistor individually is ₹1. If all the resistors are replaced at the same time the cost per resistor is
reduced to ₹0.40. The percentage surviving at the end of month ‘t’, and the probability of failure
during a month, are given below. Find the optimum replacement policy.
‘t’ in Months 0 1 2 3 4 5 6
S (t) 100 96 90 65 35 20 0
P (t) - 0.04 0.06 0.25 0.30 0.15 0.20
10. The following mortality rates have been observed for a special type of light bulbs. In an industrial unit
there are 1,000 special types of bulbs in use. The cost ₹10 to replace an individual bulb that has burn
out. If all bulbs were replaced simultaneously, it would cost ₹2.50 per bulb. It is proposed to replace
all bulbs at fixed intervals, whether or not they have burnt out, and to continue replacing burnt out
bulbs as they fail. At what intervals of time should the manager replace all the bulbs?
Month 1 2 3 4 5
Percent failing at the end of the month 10 25 50 80 100
11. Find the cost per period of individual replacement of installation of 300 light bulbs, given the following:
• Cost of replacing individual bulb is ₹3
• Conditional probability of failure is given below:
Week Number 0 1 2 3 4
Conditional Probability of Failure 0 0.1 0.2 0.4 0.3
12. The following mortality rates have been observed for a certain type of fuse. There are 1,000 fuses in
use and it costs ₹5 to replace an individual fuse. If all fuses were replaced simultaneously, it would
cost ₹1.25 per fuse. It is proposed to replace all fuses at fixed intervals of time, whether or not they
have burnt out, and to continue replacing burnt out fuses as they fail. At what time intervals should
the group the group replacement be made? Also prove that this optimal policy is superior to the
straight forward policy of replacing each fuse only when it fails.
Week Number 1 2 3 4 5
Percent failing at the end of the week 5 15 35 75 100
13. The following mortality rates have been observed for a special type of light bulbs. In an industrial unit
there are 1,000 special types of bulbs in use. The cost ₹10 to replace an individual bulb that has burn
out. If all bulbs were replaced simultaneously, It would cost ₹2.50 per bulb. It is proposed to replace
all bulbs at fixed intervals, whether or not they have burnt out, and to continue replacing burnt out
bulbs as they fail. At what intervals of time should the manager replace all the bulbs?
Week Number 1 2 3 4 5
Percent failing at the end of the week 10 25 50 80 100
SIMULATION THEORY
1. Inventory Problem: A Bakery keeps a stock of popular brand of cake. Previous experience shows the
daily demand pattern for the item with associated probabilities, as given below:
Daily Demand 0 10 20 30 40 50
Probability 0.01 0.20 0.15 0.50 0.12 0.02
Use the following sequence of Random Numbers to simulate the demand for next 10 days:
Random Numbers 40 19 87 83 73 84 29 09 02 20
Also, Estimate the daily Average Demand for the cakes on the basis of Simulated Data.
2. Queueing Problem: A dentist schedules all his patients for 30-minute appointments. Some of the
patients take more or less than 30 min depending on the type of dental work to be done. The following
summary shows the various categories of work, their probabilities and time actually needed to
complete the work:
Category of Service Time Required (in Min) Probability of Category
Filling 45 0.40
Crown 60 0.15
Cleaning 15 0.15
Extraction 45 0.10
Checkup 15 0.20
Simulate the dentist’s clinic for four hours and determine the average waiting time for the patients
as well as the idleness of the doctor.
Assume that all the patients show up at the Graphic Era University, Dehradun clinic at exactly their
scheduled arrival time starting at 8.00 a.m.
Use the following random numbers for handling the above problem:
Random Numbers 40 82 11 34 25 66 17 79
