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**Engineering Economy and Management – Assignment # 3
**

1) Handheld fiber-optic meters with white light polarization interferometry are useful for

measuring temperature, pressure, and strain in electrically noisy environments. The fixed

costs associated with manufacturing are $800,000 per year. If a base unit sells for $2950

and its variable cost is $2075, (a) how many units must be sold each year for breakeven

( analytically and graphically) (b) what will the profit be for sales of 3000 units per year?

Solution

(a)

XBE = the break even quantity (units /year)

**r = selling price per unit
**

v = variable cost per unit

XBE = F / (r – v) = 800,000 / (2950 – 2075) = 914 units per year

(b)

Profit (or loss) = TR – TC = r X – (F+ v X) = (2950 * 3000) – (800,000 + 2075

*3000) = $1,825,000 per year profit since it is positive

To Draw

X

0

1000

2000

TR 0 2950000 5900000 TC 800000 2875000 4950000 From the graph: Xbe = 914 2) Nicholea Water LLC dispenses its product Nature’s Pure Water via vending machines with most current locations at food markets and pharmacy or chemist stores. Give the equation to describe total costs for X units per year. What is the "breakeven" level of X in terms of costs and revenues? If you sell 1600 units this year. 400000 350000 Total Revenue 300000 250000 Dollars 200000 150000 100000 50000 0 0 250 500 750 1000 1250 1500 1750 Output (Units / Year) a) b) c) d) Give the equation to describe total revenue for X units per year.30. The average monthly fixed cost per site is $900. and answer the following questions as they pertain to the graph. (a) Determine the monthly sales volume needed to break even (analytically and graphically). (b) What will the profit be for sales of 7000 gallons per month? Solution The same as number 1 3) Consider the accompanying breakeven graph for an investment.18 to purify and sells for $0. while each gallon costs $0. will you have a profit or loss? How much? Solution a) At breakeven Xbe = 1000 units/year 2000 .

000 $17 220. Each machine design has unique total costs (fixed and variable) based on the annual production rate of boxes of these crackers.000 = 100000 + 1000 * v v = 100$/unit TC = F + 100X c) XBE = F / (r – v) = 100. Design A B C Fixed Cost ($) 100.5 Q 8Q .000 Annual Variable Cost ($) 20.000 + 100 *1600) = $60. is investigating implementing some new production machinery as part of its operations.000 per year profit since it is positive 4) Quatro Hermanas. The costs for the three designs are given (where Q is the annual production rate of boxes of cheese crackers).5 Q 10.000 / (200 – 100) = 1000 units per year d) At X=1600 units /year Profit (or loss) = TR – TC = r X – (F+ v X) = (200 * 1600) – (100.000 4 150.000 Then TR = 200.000 = 1000*r r = 200 $/unit TR = 200 X b) At breakeven Xbe = 1000 units/year TC = TR = 200. Inc.000 TC = 200.5 Determine the ranges of production (units produced per year) over which each alternative would be recommended for implementation by Quatro Hermanas A B C Solve by drawing 5) Three alternative designs have been created by Snakisco engineers for a new machine that spreads cheese between the crackers in a Snakisco snack.000 600.000 5.000 350. Three alternatives have been identified.000 From the graph F = 100.TC = TR = 200. and they have the following fixed and variable costs: Alternative Annual Fixed Cost ($) Variable Cost per unit ($) $120.

15741) – 35. Determine the number of . The tiller costs $1200 and has a useful life of 5 years with no salvage value.000 Q = -74.000 per year. The contractor’s MARR is 10% per year. In 1 hour.12%. the two workers can prepare 0. A high-use component (expected usage is 5000 units per year) can be purchased for $25 per unit with delivery promised within a week. if equipment costing $150. Its operating cost is expected to be $1.000 per year over the study period of 5 years. The initial cost of the excavator is $26. determine which of the machine designs would be recommended for different levels of annual production of boxes of snack crackers. Over what production volume would each design (A or B or C) be chosen? Solve by drawing 6) Samsung Electronics is trying to reduce supply chain risk by making more responsible make-buy decisions through improved cost estimation. etc.500 with a $9000 salvage value after 10 years.Graphically. It has the smaller slope of 5 versus 25 for the buy option.250/-20 = 3713 units per year (b) Since 5000 > 3713. are expected to be $18.15 mile of ditch can be prepared. the contractor can purchase a tiller and hire 2 workers at $11 per hour each.12%.20 per hour. Management is interested in the production interval of 0-150.5) + 15. 0. 7) An irrigation canal contractor wants to determine whether he should purchase a used Caterpillar mini excavator or a Toro powered rotary tiller for servicing irrigation ditches in an agricultural area of California. Neglect the element of availability (a) to determine the breakeven quantity and (b) to recommend making or buying at the expected usage level.000(A/F.04 mile of ditch in 1 hour.27741) + 15. Alternatively.000 is purchased.5) – 35. select the make option. Alternatively.000(A/P.000 boxes of crackers per year.000 – 5Q -20Q = -150. and with the tiller. Solution (a) Solve the relation AWbuy = AWmake for Q = number of units per year. The excavator will require one operator at $15 per hour and maintenance at $1 per hour.000(0. Labor and other operating costs are estimated to be $35. Salvage is estimated at 10% of first cost and i =12% per year. license. Samsung can make the component in-house and have it readily available at a cost of $5 per unit. Fixed costs for insurance.000(0. -25Q = -150.

20]/0.56 per year Equate the AW relations and let x = breakeven miles per year -21.67 per mile VCtiller = [2(11) + 1.5) = -1200(0.000(0.04 = $580 per mile FCexcavator = -26.10%.748 per year FCtiller = -1200(A/P.000(A/F.10) = -26.26380) = $-316.16275) – 18.67x = -316.10) – 18.15 = $106.000 + 9.500(A/P.748 – 106.3 miles per year .500(0.10%.06275) = $-21.56 – 580x x = 45. Solution VCexcavator = (15 + 1)/0.000 + 9.miles of ditch per year the contractor would have to service for the two options to break even.10%.

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