Remerowski Corporation Inc. asks you to estimate the cost to purchase a new piece of production equipment. The company purchased this same type of equipment in the past for $10,000. The original equipment had a capacity of 2000 units, while the new equipment has a capacity of 1000 units. The power-sizing exponent for this type of equipment is 0.28. In addition, the cost index for this type of equipment was 126 when the original unit was purchased and is now 160. Estimate the cost to purchase the new piece.

$10,458.30

Explanation:

For computing the cost of new piece first we have to find out the capacity of 1,000 units which is shown below:

Cost of equipment having capacity of 1000 units

= (New equipment capacity ÷ original capacity equipment)^power-sizing exponent for this type of equipment × past purchase

= (1000 ÷ 2000)^0.28 × $10,000

= $8,235.91

Now

Cost of new equipment today is

= Cost of new equipment × (Current cost index ÷ Old cost index)

= $8,235 × (160 ÷ 126)

= $10,458.30

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