Reference no: EM132329742

Question

Exercise: Cool Window Directions

Read the scenario below and answer the questions that follow.

Scenario: You are developing a requirements contract for an estimated quantity of 1,000 window air conditioners. The purchase description calls for an "Air Conditioner, Window with a cooling capacity between 7,000 and 8,000 British thermal units (BTUs)." Energy costs are a substantial part of total cost of window air conditioner ownership over the unit's expected life of 15 years. As a result, you included the following award clause in the solicitation:

Award will be made to the firm whose offer will provide the lowest cost of acquisition and ownership to the government during the lifetime of ownership considering both price and energy cost. Estimates of energy will be based on BTU output unit Energy Efficiency Rating (EER) and the estimated hours of operation.

The following formula will be used in offer evaluation: L = A + B(X)

Where:

· L = Life Cycle Cost (present value dollars) of a product.

· A = Initial cost of the product based on the price offered.

· B = Sum of discount factors for the life of the air conditioner. [B = 7.61 for a constant flow of dollars over the expected 15-year air conditioner life discounted at 10% (i.e., a discounted cost of $1.00 cost each year for 15 years would be $7.61)].

· X =

- (BTU)(PC)(OH)/(EER)

- (BTU)($.00008)(1,000)/(EER)

- (BTU)($.08)/(EER)

For this evaluation:

· BTU = Minimum cooling capacity for the unit measured in British Thermal Units. [Furnished by the manufacturer for models offered.]

· PC = Power Cost (Dollars per watt-hour). [PC = $.00008 in your area.]

· OH = Operating hours per year. [OH = 1,000 hours per year in your area based on technical estimates.]

· EER = Energy Efficiency Ratio. [Furnished by the manufacturer for the models offered.] You have received the following offers:

OFFERS RECEIVED
Offeror                                                                                 BTU                        EER                       Unit Price
Wholesome Air	7,000	9	$310.00
Air Movement	7,500	10	$325.00
Offeror                                                                                 BTU                        EER                       Unit Price
Joe's Air Conditioning	7,500	8.7	$335.00
Plotnic Air	7,000	9	$400.00

1. Calculate discounted energy cost.

DISCOUNTED ENERGY COST AND OFFERS

Offeror	B	X = [(BM) ($.08)] / EER	_ B(X) = Discounted Energy Cost
Wholesome Air	7.61
Air Movement	7.61
Joe's Air Conditioning	7.61
Plotnic Air	7.61

2. Calculate total of unit price and discounted energy cost to the government.

TOTAL OF UNIT PRICE AND DISCOUNTED ENERGY

Offeror Wholesome Air	A = Unit Price	B(X) = Discounted Energy Cost	L = A + B(X)
Air Movement
Joe's Air Conditioning
Plotnic Air